Highlights

• We left the event feeling neutral as management toned down full year target after 2Q15 normalized without experiencing the extraordinary large spot MVS-T order as in 2Q14. Furthermore, 2Q15 profit was eroded by higher corporate tax rate as pioneer status renewal was delayed.

• MVS-S: 2Q15 sales more than doubled qoq but declined 13.2% yoy contributing 24% of group’s revenue. Order backlog rebounded strongly to 311 vs. 288 systems in 2Q15. 3Q15 revenue is forecasted to be ranging RM11-13m.

• MVS-T: underperformer in 2Q15 with sales plummeted by 78.3% qoq and 95.7 yoy to RM1.0m accounted for only 3% of group’s top line. Expects to deliver 5-7 units in 3Q15 vs. 1 in 2Q15. Order book remained flat at 4-5 units to be delivered over the next 2 months. 3Q15 sales expected to be between RM3.5-5.0m, implying a yoy decline ranging from 55.8% to 69.0%. The delay in order pickup was attributed to sufficient installed capacity and lack of end-user demand visibility.

• ABI: With relatively stable demand, sales surged by 16% qoq to RM27.2m accounted for 70% of group’s turnover. 3Q15 outlook still good and healthy as current order backlog was flat at RM11.1m. 3Q15 order is expected to be more than RM25m with revenue of more than RM22m. Strong funnel was driven by orders from Mexican and Malaysian EMS as well as Chinese and Taiwanese ODM. However, ViTrox cautioned that 4Q15 order visibility is limited.

• ECS: Backlog for the next 2 months dropped from RM1.6m to RM1.0m with sales forecast of RM2.3-2.8m in 3Q15.

• By summing the mid/min-points of abovementioned guidance, 3Q15 sales could potentially up by 3.3% yoy to RM40.8m.

• Pioneer status was approved in June 2015 for 10 years until 2024 but only expects to enjoy the full tax exemptions in FY6 once all products have complied with the new requirements.

• Phase 1 of Campus 2.0 will be constructed over 2 years starting 2016 with estimated project cost of RM110m which will be majority funded by borrowings.

Risks

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

Forecasts

• Updated model based on latest sales, CAPEX, expansion funding and tax guidance. In turn, FY15-17 EPS have been revised by -18.8%, -25.3% and -36.7%, respectively.

Rating

HOLD , TP: RM2.95

• 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 HOLD after reducing our TP by 22.4% from RM3.80 to RM2.95 reflecting the downward revision in earnings. Our TP is pegged to unchanged 1SD above 5-year historical average P/E multiple or 16.0x of FY16 EPS (see Figure #2).

Source: Hong Leong Investment Bank Research - 24 Aug 2015