Highlights

• Entered into a Sale and Purchase Agreement with Penang Development Corporation (PDC) for the acquisition of a land for a total consideration of RM34.2m.

• The property is situated in Daerah Seberang Perai Selatan, part of Batu Kawan Industrial Park with an area of 22.2 acres.

• The asset is subject to 60-year State Lease and shall be used only for research, design & development, manufacturing of advance automated MVS & equipment, intelligent robotic vision system & modules and electronics embedded system for semiconductor, automotive, electronics, medical and healthcare industries.

• Price tag was arrived based on a “willing buyer and willing seller” basis taken into consideration the prime area and size of the land allocated.

• The acquisition will be financed entirely by cash via internally generated funds and borrowings. The transaction is expected to be completed within 9 months from the date of Agreement.

• With 80% utilization rate coupled with anticipation of strong business growth, ViTrox plans to carry out a 3-year expansion plan scheduled to complete by 2023. Financial Impact

• No concern as it has RM51.9m of cash and strong balance sheet of 2.8% gearing as of 3Q14. Assuming it will finance half of this deal by debt, gearing would only rise to 13.2%.

Comment

• A positive development as it seized the golden opportunity to cement future growth. Land for expansion at Bayan Lepas is scarce and this new land is strategically located with close proximity to its existing factory via Penang Second Bridge.

• The transaction value of RM1.54m per acre is justifiably on par as Inari Amertron’s deal in August 2014.

• This land will be the platform for its Campus 2.0 which will start construction of phase 1 in the middle of 2015.

• With expansion, ViTrox envision to generate revenue of RM896m and employing 1k highly skilled workforce by 2020.

Risks

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

Forecasts

• Unchanged.

Rating

BUY , TP: RM3.17

Positives

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

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 with unchanged TP of RM3.17, pegged to 1SD above 5-year historical average P/E multiple of 16.2x

Source: Hong Leong Investment Bank Research - 10 Dec 2014