Highlights

• Surprisingly bullish sales guidance despite a seasonally weak 1Q16 and ViTrox is upbeat for FY16 as oppose to the general outlook of global semiconductor equipment industry.

• MVS-S: 4Q15 revenue grew 11% qoq and 31% yoy and contributed 21% of FY15 revenue. Order backlog increased to 200 from 170 systems in 4Q15. 1Q16 revenue is forecasted to be circa RM5-7m (-42% qoq and +41% yoy).

• MVS-T: A drag in FY15 as sales fell 57% although it picked up strongly in 4Q15 by 27% qoq, accounting for 12% of FY15 sales vs. 27% last year. Expect to deliver 12-15 units in 1Q16 vs. 6 in 4Q15. Order book increased to 6-10 machines to be delivered over the next 2 months. 1Q16 sales projected to be ranging RM12-15m (+82% qoq and +184% yoy). Demand improved significantly, especially from Taiwan. Target to add 15 new customers in FY16 with focus on China, Taiwan and SEA markets.

• ABI: Largest contributor as sales picked up 27% qoq and 7% yoy to account for 64% of FY15 turnover. 1Q16 outlook is extremely strong with backlog of RM20m carried forward from 4Q15. 1Q16 revenue is forecasted at RM28-31m (flat qoq and +26% yoy). Funnel is very strong with potential deals up to 15 AXIs and 25 AOIs from Europe, Mexico, USA, China, Thailand and Penang which likely to keep it busy till June.

• ECS: FY15 revenue was down 21%. Demand returned in 1Q16 with sales estimated at RM2-3m.

• By summing the mid-points of guidance above, 1Q16 sales could potentially expand 55% yoy and 7% qoq to RM51.5m.

• Pioneer status tax incentive is delayed due to processing error and expected to be applied in 2Q16. Tax amounted to RM5.7m in FY15 and 1Q16 will be backdated.

• Phase 1 of Campus 2.0 is expected to complete by mid-17 with an estimated cost of RM110m which will be funded 85% by USD borrowings at a rate of 2%. This property asset will be depreciated over 60 years.

Risks

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

Forecasts

• Updated model based on latest sales, CAPEX and tax guidance. In turn, FY16-17 EPS have been revised by +8.6% and +3.9 %, respectively.

Rating

HOLD , TP: RM3.16

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 raising our TP by 7.1% from RM2.95 to RM3.16 reflecting the upward revision in earnings. Our TP is pegged to P/E multiple or 16.0x of FY16 EPS (see Figure #2).

Source: Hong Leong Investment Bank Research - 29 Feb 2016