Highlights

• After achieving best ever 1Q revenue and profit, it continues to drive towards FY15 sales target ranging from RM170m to RM208m, representing flat to 22% yoy growth. Although 2Q15 may not match prior year’s performance, 2H15 is expected to be much stronger.

• MVS-S: 1Q15 sales fell by 27% yoy as its major client, SRM waded through the seasonally weaker quarter. Contribution down to 13% of group’s revenue vis-à-vis 25% in 1Q14 showing progressive effort in mitigating dependency on single largest customer thanks to its product diversification. Order backlog rebounded strongly to 288 vs. 168 systems in 1Q15. 2Q15 revenue is forecasted to be ranging RM12-15m. Demand is expected to remain stable in the coming quarters.

• MVS-T: 1Q15 sales gained 26% yoy to RM4.7m accounted for 14% of group’s top line. Expects to deliver 5-7 units in 2Q15 vs. 5 in 1Q15. Order book maintained at 5 units to be delivered over the next 2 months. 2Q15 sales expected to be between RM3.5-5.0m, implying a yoy decline ranging from 85.6% to 79.3%. The delay in order pickup was attributed to sufficient installed capacity and lack of end-user demand visibility.

• ABI: major growth driver in 1Q15, as sales surged by 96% yoy to RM23.4m accounted for 70% of group’s turnover. 2Q15 outlook remains strong and healthy as current order backlog swelled to RM12m. 2Q15 sales forecast is estimated to be ranging RM20-25m. Strong funnel was driven by bulk orders from 2 major EMS in China, Malaysia and German as well as new OEM and ODM account wins. Multitudes of CMs continue to buy at various level to support IoT and factory 4.0.

• By summing the midpoints of abovementioned guidance, 2Q15 sales could potentially fall by 38.1% yoy to RM40.3m.

• Pioneer status which grants tax exemptions ended in 1Q15 and 2Q15 will be subjected to circa 22% corporate tax rate. ViTrox expects favorable decision to be announced in the next 1-2 weeks.

Risks

• Failure in pioneer status renewal, FOREX, downturn in semiconductor demand and equipment spending, patent infringement and technology imitation.

Forecasts

• Unchanged.

Rating

HOLD , TP: RM3.80

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

Downgrade from BUY to HOLD in view of the limited upside (less than 10%) from unchanged TP of RM3.80. Our TP is pegged to 1SD above 5-year historical average P/E multiple or 16.0x of FY16 EPS (see Figure #2).

Source: Hong Leong Investment Bank Research - 25 May 2015