Highlights

• After achieving record high revenue and core PAT in 1Q17, it is unstoppable and aiming for a back-to-back record breaking streak in 2Q17.
• MVS-S: 1Q17 sales grew 59% yoy and contributed 15% of overall sales. Order backlog grew to 258 (2.5 months lead- time) from 224 systems in 1Q17, but lower than 2Q16?s 266 units. 2Q17 revenue is forecasted to be RM13-14m (+34% qoq and +35% yoy).
• MVS-T: 1Q17 sales expanded 78% qoq but fell 25% yoy, accounting for 17% of overall sales. Expect to deliver 7-9 units in 2Q17 vs. 11 in 1Q17. Order book is forecasted at 6-8 machines in the next 3 months with softer demand in 2Q17, especially from Taiwan while this is partly offset by improved interest from SEA. 2Q17 sales projected to be ranging RM8- 10m (-25% qoq and -1% yoy). Special focus in China through engaging new SCPs and direct hiring to improve customer coverage, market share and response rate.
• ABI: Sales surged by 3% qoq and 40% yoy to account for 66% of 1Q17 turnover. 2/3Q17 are expected to be solid with strong funnel from both new and existing clients. Backlog as of early May stood at RM50m. 2Q17 revenue is estimated at RM50-55m (+15% qoq and +44% yoy). Qualified as 3D AOI supplier to 2 top EMS companies. Expects to receive 3D AOI orders from China CM/OEM with delivery in 2/3Q17 with backlog of more than 10 machines.
• By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 2Q17 sales could potentially expand 36% yoy and 10% qoq to RM76.7m, yet another record in the making.
• Key delivery risk lies in sourcing of critical components rather than floor space. No rush in moving to Campus 2.0 as it may temporarily rent from the factory next door if required.
• ViTrox?s book-to-bill ratio remains healthy at 1.39 in Apr 17.

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 thanks to economies of scale. In turn, FY17-19 EPS forecasts are raised by 16.0%, 17.8% and 9.0%, respectively.

Rating

BUY ↔ , TP: RM7.03 ↑

• 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 BUY after raising our TP by 49.3% from RM4.71 to RM7.03 reflecting our upward earnings revision, pegged to P/E multiple of 19x (previously 15x) in line with global peers? average .

Source: Hong Leong Investment Bank Research - 22 May 2017