Highlights

The analyst briefing affirmed our optimism as ViTrox is upbeat about its business outlook amid global semiconductor sector recovery. Management remained confident as its aggressive business strategies so far are being fruitful and profitable.

MVS-S: orders revived by 144% yoy and 63% qoq thanks to its major client, SRM who is also riding high on the industry turnaround wave. Its sales contribution recorded a first surge since 2008 to 25% (+9-ppt qoq). Order backlog improved to 326 from to 143 systems in 1Q14. MVS-S remains the most profitable among its portfolio. 2Q14 revenue is forecasted to be ranging RM6-8m.

MVS-T: although was relatively flat qoq, but still a remarkable growth of 417% vs. a year ago with steady sales contribution of 16% in 1Q14. Expects to deliver 30-35 units in 2Q14 vs. 5 in 1Q14. Order book swelled to 23 machines from 11 units in 1Q14, to be delivered over the next 3 months. Moreover, machine qualifications for 5 clients are on-going. 2Q14 revenue is expected to be between RM18-20m.

ABI (AOI and AXI): accounted for 52% of 1Q14’s turnover, the largest contributor after expanding 35% yoy. Sequentially, sales contracted 41% due to seasonality softness. Outlook is positive driven by:

1. Strong demand from US contract manufacturers (e.g. Plexus, Flextronics, Jabil, Benchmark) who are currently running at maximum capacity.

2. New account win including Intel, Foxconn, Kingston, Venture, OKI, Fabtronic and etc. 2Q14 revenue forecast is estimated to be more than RM20m.

ECS: demand is touted to be very strong in 2Q14 and 3Q14 on the back of industry wide recovery. Current backlog is more than RM2.1m to be delivered in next 3-4 months. 2Q14 revenue is forecasted to range between RM5.5-6.0m.

By taking the low-ends of those forecasts, 2Q14 sales could potentially register a 74.6% yoy growth to RM49.5m and will be the strongest quarterly sales in its history.

Risks

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

Forecasts

Maintained.

Rating

BUY, TP: RM2.78

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

Reiterate BUY after lifting our fair value by 63.5% from RM1.70 to RM2.78.

TP is pegged to 1SD above 5-year historical average P/E multiple of 16.2x (see Figure #1) compared to previous’ 9.9x in order to reflect its solid exponential growth ahead.

Source: Hong Leong Investment Bank Research - 26 May 2014