Highlights

• Guided for another record quarter, if materializes, 4Q17 will be the fourth consecutive back-to-back record breaker since 1Q17. We are not overly excited as this is only marginally higher than our forecast and should have been priced in its current rich valuation. Challenges remain including raw material sourcing, floor space constraint, seasonal closure and relocation to new Batu Kawan Campus 2.0.
• MVS-S: 3Q17 sales grew 18% YoY and contributed 16% of overall sales. Order backlog was strong at 488 (4.5 months lead-time) vs. 253 systems in 3Q17. Minor softness was observed QoQ and 4Q17 sales is forecasted to be RM11-12m (-14% QoQ and flattish YoY). Plan to capture opportunities in wafer vision inspection with funnel of >10 machine orders from MNCs in Malaysia in the next 3-6 months.
• MVS-T: 3Q17 sales expanded 44% YoY and 19% QoQ, accounting for 16% of overall sales. Expect to deliver 20-23 units in 4Q17 vs. 13 in 3Q17 and 8 in 2Q17. Order book is forecasted at 23 machines (vs. 26 previously) in the next 3 months with strong demand from customers in China, SEA (highlighted in our report entitled “Anticipate another Record High in 2Q17” dated 3 Aug) and lately Taiwan also. 4Q17 revenue is projected to be ranging RM20-23m (+59% QoQ and 221% YoY). Special emphasis on China with local SCP to win orders from high impact projects.
• ABI: Sales surged by 16% QoQ and 55% YoY to account for 65% of 3Q17 turnover. Backlog on 5 Oct stood at RM51m consisting 15 and 20 units of 3D AOI and 3D AXI, respectively. 4Q17 revenue is estimated at RM50-53m (-7% QoQ and +16% YoY). Pipeline deals include (1) >100 units of 2D to 3D upgrade; and (2) >40/20 3D AOI/AXI orders from top EMS and CM in Asia and America over next 3-6 months.
• By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 4Q17 sales could potentially expand 36% YoY and 3% QoQ to RM86.6m, another revenue record breaker.
• ViTrox’s book-to-bill ratio remains healthy >1.0 in Nov 17.

Risks

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

Forecasts

• Based on the latest revenue guidance, we raise FY17 EPS forecast by 3% while keeping FY18-19 unchanged.

Rating

HOLD ↔, TP: RM4.99 ↑

• 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 although TP is revised upward by 9.9% from RM4.54 to RM4.99, pegged to P/E multiple of 22x (previously 20x) of FY18 EPS, in line with global peers’ average .

Source: Hong Leong Investment Bank Research - 20 Nov 2017