Investment Highlights

• We maintain BUY call on ViTrox Corp with a higher FV of RM9.00/share (from RM8.40/share) on a rolled-forward FY25F PE of 40x, 1 std deviation above the 5-year mean of 33x. We ascribe an unchanged 4-star ESG rating which incorporates a 3% premium to our valuation .

• FY23 core earnings of RM133mil missed expectation, .6 coming in 10% below our forecast and 7% of consensus. .8 .8 The negative variance is mainly attributed to lower-than- .6 expected sales. However, we maintain FY24F-FY25F EPS /a on anticipation of a technology recovery cycle. We also .0 introduce FY26F earnings with a 11% growth premised on .6 .8 revenue expansion of 14% .8 .

• YoY, FY23 revenue dropped 23%, mainly attributed to lower m demand from machine vision system (MVS) and automated board inspection (ABI) segments as a result of the global economic slowdown and longer-than-expected recovery in the semiconductor industry. Coupled with EBITDA margin sliding by 1.8%-point to 28%, FY23 core net profit declined by 37% YoY.

• QoQ, 4QFY23 revenue slid by 5% mainly due to softer demand from the ABI segment amidst a global economic slowdown. 4QFY23 core net profit dropped by 33% to RM26mil, which we believe is likely due to unfavourable product mix amid intense price competition.

• Despite the weaker reported earnings, we are comforted by th the group's well-diversified revenue base and its exposure to high-growth industries such as computing, 8) telecommunication and automotive segments, which are its 2) bright spots.

• We anticipate a gradual recovery this year with orders picking up from its Automated Board Inspection (ABI) and Machine Vision System (MVS) segments compared to 2HFY23.

• Additionally, ViTrox's geographical diversity may play a crucial role in capturing new customers arising from trade diversion due to the US-China chip war, particularly in Mexico and the ASEAN region.

• From a valuation perspective, the stock currently trades at an attractive FY25F PE of 35x vs. its 5-year peak of over 66x. Vitrox has also proposed to undertake a 1-for-1 bonus issue of up to 947mil new ordinary share.

Source: AmInvest Research - 23 Feb 2024