Highlights

We left the analyst briefing feeling positive as ViTrox shared that both MVS and ABI orders have regained momentum in 2Q13 and is slightly optimistic on the industry outlook.

Overall 1Q13 sales edged up RM4.3m yoy (+50%) due to more diversified and larger customer base driven by ABI sales which more than doubled, offsetting the declines in MVS and ECS. However, sales tumbled 62% qoq mainly due to seasonal semiconductor equipment spending cycle which was sluggish.

MVS: At 24% of contribution to overall (down from 40% in 1Q12 and 32% in 4Q12), revenue remains a drag as SRM, their biggest customer, is impacted by industry slowdown.

Nonetheless, ViTrox saw MVS-S order book improved 50% qoq in 2Q13 (106 vs. 50 systems) and expect it to sustain at this level as demand visibility remains low. For MVS-T, order book swelled to 21 machines with production running at full capacity till Aug. To mitigate the bottleneck, capacity will be expanded from 6 to 8 MVS-Ts per month.

ABI: Capacities for AOI and AXI are 12 and 2 machines per month respectively. ViTrox expects to benefit based on their strong footprint in CM (contract manufacturer) as OEM prefers CM over ODM (original design manufacturer) in the interests of intellectual property, responsiveness and costs.

ViTrox guided that PCA sales in 2Q are much higher than 1Q and currently focusing on winning bids / deal from Microsoft (new Xbox), Alcatel-Lucent and Cisco (telco / 4G).

Continue to invest in R&D: Ploughed back RM2.9m (+18% yoy, -15% qoq) or ~25% of sales with majority into PCA segment (~62.6%), part of ABI products which is currently the main sales driver with 69% contribution.

Risks

FOREX, downturn in semiconductor demand and equipment spending, patent infringement, technology imitation.

Forecasts

Unchanged.

Rating

HOLD, TP: RM0.74

Positives – ViTrox has growth potential in the ABI segment with the exit of Agilent from this market.

Negatives – ViTrox operates in a highly competitive market and prone to rapid advances in technology.

Valuation

We maintain HOLD call on the stock with unchanged target price of RM0.74 based on DCF with a WACC of 11.8% and TG of 0%.

Source: Hong Leong Investment Bank Research - 03 Jun 2013