Highlights

• Briefing outcome was neutral to us. Orders remain solid and capacity is restricted by floor space. Extra focus will be put on inventory management to improve cash conversion cycle.

• MVS-S: 2Q16 sales grew 8% yoy and contributed 18% of overall sales. The new wafer vision inspection solution (priced at USD500k per unit) will undergo beta run by end of Aug. Order backlog increased marginally to 271 (2.5 months leadtime) from 266 systems in 2Q16. 3Q16 revenue is forecasted to be RM9-10m (-5% qoq and +2% yoy).

• MVS-T: After the amazing 1Q16, 2Q16 sales contracted by 43% qoq but still represented an almost 9-fold increase yoy, accounting for 16% of overall sales. Expect to deliver 9-12 units in 3Q16 vs. 9 in 2Q16. Order book is at 7-9 machines to be delivered over the next 2 months with positive demand outlook for 3Q16. 3Q16 sales projected to be ranging RM9- 12m (+15% qoq and +63% yoy). ViTrox targets to add new customers and sales channel partners to expand coverage in China, Taiwan and SEA. Limit on both technical availability and floor space capacity are gradually weighing on delivery commitments.

• ABI: Largest contributor as sales picked up 12% qoq and 34% yoy to account for 64% of 2Q16 turnover. 3Q16 outlook is strong and likely to outperform sequentially. Carried forward backlog is at RM18m and funnel remains healthy with a 50% probability to win orders amounted to RM30m. 3Q16 revenue is forecasted at RM31-33m (-12% qoq and +18% yoy). Potential orders are expected to come from customers in Asia, America and Europe in next 3 months, comprising of (1) >14 AXIs for capacity expansions; (2) >6 AXIs for replacement of old 5DX; and (3) >10 AOIs.

• By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 3Q16 sales could potentially expand 32% yoy and -6% qoq to RM53.1m.

• ViTrox’s book-to-bill ratio remains healthy at 1.11 in Jul 16.

Risks

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

Forecasts

• Unchanged despite stronger-than-expected 1H16 and stable yoy growth in 3Q16. As 1H16 was aided by tax refund and USD strength, we are conservative on the seasonally weak 4Q16 in view of the down trending global book-to-bill ratio.

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 with unchanged TP of RM3.50, pegged to P/E multiple or 16.0x of FY16 EPS.

Source: Hong Leong Investment Bank Research - 22 Aug 2016