Highlights

We left the analyst briefing feeling upbeat on its aggressive business strategies supported by the recovery of global semiconductor sector.

Management is confident to achieve strong growth in FY14, yet again creating another record breaking year by capturing market share in the surface mount technology (SMT) inspection equipment markets.

Global Industry Analysts projected the global market for SMT equipment to reach USD5.3bn by 2018, driven by recovery in electronics and semiconductor industries, new products and the need to upgrade older production lines. Furthermore, Asia-Pacific represents the largest market worldwide, while Latin America is projected to emerge as the fastest growing marking with a CAGR of 7.2% from 2010 to 2018.

MVS-S: sales contribution has been shrinking since FY10 from 45% to 16% in FY13 as its major client, SRM was hit by the downturn of the industry. However, order backlog has improved to 143 systems vs. 64 systems in 4Q13. MVS-S remains the most profitable among its portfolio. 1Q14 revenue is forecasted to be ranging RM4-4.5m.

MVS-T: continue to gain traction offsetting the volatility of MVS-S and sales contribution has surpassed the latter at 17% in FY13. Order book swelled to 11 machines with 5 machines to be delivered in 1Q14, while the remaining over the next 3 months. Moreover, additional 8 units are in the pipeline. 1Q14 revenue is expected to be between RM3-4m.

ABI (AOI and AXI): largest contributor and will be the main growth driver for FY14 and beyond. Orders were moderate in 1Q14 due to seasonality softness but still expect to outgrow by 40% yoy as it expects to win some 3D AOI orders.1Q14 revenue forecast is estimated at RM13-15m. ViTrox will leverage on its technology leadership in 3D AOI and AXI to expand its 2D AOI market share, which is currently very small.

ECS: demand to improve over the next 2-3 months and 1Q14 revenue is forecasted to range between RM3-4m.

By taking the low-ends of those forecasts, 1Q14 sales could potentially register a 76.9% yoy growth to RM23m.

Risks

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

Forecasts

Raised volume shipment forecasts for MVS-T, AOI and AXI along with minor adjustments on gross margins. In turn, FY14-15 EPS were elevated by 33.2% and 48.4% respectively. FY16E is also introduced.

Rating

BUY, TP: RM1.70

Positives - undisputed 3D-AOI and AXI technology leader, great potential in winning more market share in the advent of global semiconductor recovery.

Negatives - MVS-S sales is dependent on single customer, majority of sales are non-recurring, highly competitive 2D-AOI market and prone to rapid advances in technology.

Valuation

Upgrade from HOLD to BUY after lifting our fair value by 51.8% from RM1.12 to RM1.70, reflecting the upward revision of our forecasts as well as rolling over our valuation to FY15.

TP is pegged to unchanged 5-year historical average P/E multiple of 9.9x (see Figure #1).

Source: Hong Leong Investment Bank Research - 3 Mar 2014