Highlights

• Guided a rosy outlook ahead and expects to outdo itself in 3Q17, yet another record quarter in the making. However, this is within our expectations (refer to report entitled ?1H17 Results In Line? dated 18 Aug) due to seasonal strength. Thus we are not overly excited and believe that this has been priced in its current rich valuation.
• MVS-S: 2Q17 sales grew 64% YoY and contributed 21% of overall sales. Order backlog was resilient at 253 (2.5 months lead-time) compared to 258 systems in 2Q17. Minor softness was observed QoQ and 3Q17 revenue is forecasted to be RM10-12m (-33% QoQ and -4% YoY). Plan to penetrate new industry with new prototype to be ready by year end.
• MVS-T: 2Q17 sales expanded 78% YoY but fell 6% QoQ, accounting for 15% of overall sales. Expect to deliver 16-20 units in 3Q17 vs. 11 in 1Q17 and 8 in 2Q17. Order book is forecasted at 26 machines (significant improvement from 6-8) in the next 3 months with strong demand from China and SEA customers (highlighted in our report entitled ?Anticipate another Record High in 2Q17? dated 3 Aug). 3Q17 sales are projected to be ranging RM16-20m (+59% QoQ and +92% YoY). Special emphasis on China with local SCP to win orders from high impact projects.
• ABI: Sales surged by 4% QoQ and 30% YoY to account for 61% of 2Q17 turnover. Top 3 market segments are auto (34% of sales), telecom (22%) and consumer (12%). 2H17 outlook remains solid with strong backlog and requirements from new and existing customers. Backlog on 28 Jul stood at RM55m. 3Q17 revenue is estimated at RM56-60m (+22% QoQ and +63% YoY). Potentially to secure more than 20 AXI and 68 3D AOI from a few top EMS and CM in the next 6 months.
• By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 3Q17 sales could potentially expand 54% YoY and 15% QoQ to RM89m, another revenue record breaker.
• ViTrox?s book-to-bill ratio remains healthy at 1.26 in Jul 17.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ↓ , TP: RM4.54↔

• 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

• Downgrade from BUY to HOLD after gaining 125% since our last upgrade on 28 Feb on the back of super-rich valuation of >20x FY18F EPS. TP of RM4.54 is maintained, pegged to P/E multiple of 20x of FY18 EPS, in line with global peers? average .

Source: Hong Leong Investment Bank Research - 21 Aug 2017