Highlights

• With pioneer status tax incentive resolved, ViTrox is assertive for next level of growth. In fact, demand is strong that capacity and delivery are growing concerns while new capacity in Batu Kawan will only be completed in mid-2017.

• MVS-S: 1Q16 revenue grew 50% yoy and contributed 11% of overall sales. Moving up the semiconductor value chain with new wafer vision inspection solution priced at USD500k per unit and is gaining strong interest. Order backlog increased to 266 (2.5 months lead-time) from 200 systems in 1Q16. 2Q16 revenue is forecasted to be RM9m (+42% qoq and -2% yoy).

• MVS-T: Came back with a bang by growing 237% yoy and 116% qoq, accounting for 29% of 1Q16 sales vs. 14% last year. Successfully made inroads into China’s tier-2 and white brand mobile players including Huawei, XiaoMi, Oppo and Vivo. Currently conducting product qualifications with 8-9 new customers, progressing well to meet FY16’s target of 15 new account additions. Expect to deliver 12-15 units in 2Q16 vs. 15 in 1Q16. Order book increased to 8-10 machines to be delivered over the next 2 months and 10 units in 3Q16. 2Q16 sales projected to be ranging RM12-15m (-16% qoq and +13 folds yoy). Limit on both technical availability and floor space capacity are gradually weighing on delivery commitments.

• ABI: Largest contributor as sales picked up 10% qoq and 39% yoy to account for 58% of 1Q16 turnover. 2Q16 outlook is very strong with backlog of more than RM22m carried forward from 1Q16. 2Q16 revenue is forecasted at RM31- 33m (flat qoq and +18% yoy). This projection is dependent on the delivery of AXI and robotic vision system penetrating into solid state drive (SSD) and automotive segments. This product has attracted strong interest from China, US, Europe, SEA and Thailand.

• By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 2Q16 sales could potentially expand 43% yoy and flat qoq to RM55.5m.

• ViTrox’s book-to-bill ratio remains healthy at 1.21 in Apr 16.

Risks

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

Forecasts

• Updated model based on latest revenue and tax guidance. As a result, FY16-17 EPS have been revised by +10.6% and +3.0 %, respectively.

Rating

HOLD , TP: RM3.50 

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 10.8% from RM3.16 to RM3.50 reflecting the upward revision in earnings. Our TP is pegged to P/E multiple or 16.0x of FY16 EPS.

Source: Hong Leong Investment Bank Research - 27 May 2016