PETALING JAYA: While Vitrox Corp Bhd will see a compression in earnings this year, the group is poised for a strong recovery in 2020, led by the mass deployment of 5G.

“We believe both its automated board inspection (ABI) for electronics manufacturing services (EMS) clients as well as machine vision system (MVS) for semiconductor clients, driven by smartphone demand, will greatly benefit from these key growth areas as evidenced in the past, which will anchor a strong recovery.

However, the research house has downgraded ViTrox to “sell”, given the ample downside to ViTrox at present, as it believes the positives have been overly priced in at this level with stretched forward valuation of close to +1 standard deviation above its three-year mean.

“We cut our 2019 to 2020 net profit forecasts by 3% to 15% to account for slower sales in both the ABI and MVS segments, ” said UOB KayHian in a recent research report.

ViTrox reported a 51% year-on-year (y-o-y) decline in core net profit to RM13.9mil for the third quarter of financial year 2019, bringing the nine-month core net profit to RM61.9mil, which was 19% lower as compared to the same period last year.

Results were below expectations due to slower-than-expected sales of MVS due to the slowdown in the semiconductor market, particularly in the smartphone segment.

Given the slower-than-expected global semiconductor sales pick-up from the US-China trade truce, UOB KayHian now expects ViTrox’s earnings to be compressed in 2019 by 11%, as compared to the research house’s initial expectation of 5% growth y-o-y, on the ongoing weakness from its semiconductor clients, particularly in the smartphone business.

Forbes previously reported in July that ViTrox, along with two other Malaysian companies, ELSOFT RESEARCH BHD and Pentamaster Corp Bhd were recognised as among the leading public companies in the AsiaPacific with an annual revenue of between US$5mil and US$1bil.

The three companies beat a total of 19,000 companies where candidates were screened for profitability, growth and modest indebtedness.

Based on Bloomberg data yesterday, ViTrox has four “sell” calls out of six analyst recommendations.

Hong Leong Investment Bank Research has also cut its FY19 to FY20 earnings per share for ViTrox by 18%, 20% and 19%, respectively, in view of its underperformance.

“Despite its technology leadership, its outlook is clouded by trade tensions which delay investment decisions.

“MVS-standard sales are highly dependent on single customers and the majority of sales are non-recurring, ” said HLIB Research.