Highlights

• FY16 revenue will definitely be another record high as 9M16 has already matched previous achievement. In tandem, core net profit is also poised to set similar milestone. Despite major relocation in FY17, ViTrox still targets for another growth year.

• MVS-S : 3Q16 sales grew 15% yoy and contributed 20% of overall sales. The new wafer vision inspection solution (priced at 100x higher per unit) delivered to customer in 3Q16 and in the final stage of buy-off. Potential sale of 2-3 units in the next 6 months. Order backlog fell marginally to 232 (2.5 months lead-time) from 271 systems in 3Q16. 4Q16 revenue is forecasted to be RM9-10m (-17% qoq and -8% yoy).

• MVS-T : 3Q16 sales grew 3% qoq and 45% yoy, still accounted for 16% of overall sales. Expect to deliver 6-9 units in 4Q16 vs. 9 in 3Q16. Order book is forecasted at 6-8 machines in the next 3 months with demand turned softer in 4Q16. 4Q16 sales projected to be ranging RM6-9m (-20% qoq and +1% yoy). Special focus in China through engaging new SCPs and hiring of local account manager to improve customer coverage, market share and response rate. ViTrox is also pursuing private branding opportunities. Limit on both technical availability and floor space capacity are gradually weighing on delivery commitments.

• ABI : Sales eased by 2% but picked up 53% yoy to account for 62% of 3Q16 turnover. 4Q16 outlook is strong with healthy backlog and potential orders in the pipeline. Carried forward backlog is more than RM25m and funnel remains healthy with a 50% probability to win more than RM30m orders. 4Q16 revenue is forecasted at RM31-33m (-10% qoq and +8% yoy). India will be a new market target as Modi’s policy requires all retail products sold in India to comply with 30% local content.

• By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 4Q16 sales could potentially expand 5% yoy but soften 13% qoq to RM50.3m.

• ViTrox’s book-to-bill ratio remains healthy at 1.08 in Oct 16.

Risks

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

Forecasts

• Modify our sales assumptions based on latest guidance while tweaking gross margins taking into consideration of stronger USD. In turn, FY16-18 EPS are raised by 3.7%, 28.9% and 18.6%, respectively.

Rating

• HOLD ↔ , TP: RM3.90

• ViTrox is poised to win more market share in the advent of global semiconductor growth leveraging on its technology leadership in machine inspection, especially in 3D-AOI and AXI. A beneficiary of stronger USD also. However, MVS-S sales are highly dependent on single customer and majority of sales are non-recurring.

Valuation

• Reiterate HOLD even TP is raised by 11.4% from RM3.50 to RM3.90 after rolling forward our valuation to FY17, pegged to unchanged P/E multiple of 16.0x.

Source: Hong Leong Investment Bank Research - 21 Nov 2016