Highlights

We left the analyst briefing on a slightly positive note as ViTrox is on track to achieve another sales record year although it guided a qoq weaker 4Q13 with a full-year PAT margin target of 25%.

To aggressively capture more ABI market share in FY14, especially in 2D AOI. However, ViTrox stayed mum when asked about the internal plans / targets or even the longer term strategy to achieve their goal of RM500m in FY15.

MVS-T: order book of 3-5 units to be delivered over the next 2 months and expect its 4Q13 revenue to range between RM3-4m. Currently, MVS-T is undergoing qualifications with 3 customers in Korea, Philippines and Malaysia.

MVS-S: order backlog fell to half a month with 64 systems compared to 110 systems in 2Q13, demand visibility remains low and expect sales to be RM1.2-1.5m in 4Q13.

ABI-PCA: expect order slow down due to seasonality with a forecast of RM3-4m in next 1-2 months. Healthy level backlog from 3Q13 of RM12m. Moderate business outlook as growth will be relying on new customer acquisition. Good potential in the pipeline to win new account with high probability of deal closure.

Pioneer status which allows ViTrox to enjoy tax exempt incentives will be expiring in Jan 2015 and it plans to submit new application next year in order to obtain extension.

Risks

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

Forecasts

Minor tweaks in ABI sales, D&A and interest income. As a result, this has led to FY13 -15 EPS downward revision by 7.3%, 6.8% and 6.8% respectively.

Rating

HOLD, TP: RM1.12

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

Maintain HOLD rating on the stock although our fair value has been raised by 51.4% from RM0.74 to RM1.12 as we switched from DCF valuation methodology to one-year forward P/E multiple. TP is pegged to 5-year historical average P/E multiple of 9.9x (see Figure #1).

Source:Hong Leong Investment Bank Research - 26 Nov 2013