Highlights

• Despite seasonal weakness, ViTrox guided 1Q18 to be the strongest ever first quarter in its history. While this good head start may indicate another bullish year, we are not overly excited and believe that this has been priced in. Challenges remain including US$ depreciation, raw material sourcing, floor space constraint, seasonal closure and relocation to new Batu Kawan Campus 2.0.
• MVS-S: 4Q17 sales grew 4% YoY and contributed 16% of overall sales. 1Q18 order backlog was strongest at 553 (5.5 months lead-time) vs. 488 systems in 4Q17. 1Q18 is expected to be rather flattish with turnover projection of RM10-12m (mid-point: -4% QoQ but +9% YoY). Plans to grow wafer vision inspection solution in Malaysia and participate in SEMICON SEA exhibition. It is facing challenges in material sourcing, such as camera.
• MVS-T: 4Q17 sales expanded 394% YoY and 99% QoQ, accounting for 19% of overall sales. This extraordinary gain was achieved with lower ASP which led to the lower overall group GP margin in 4Q17. Expect to deliver 10-15 units in 1Q18 vs. 25 in 4Q17 and 11 in 1Q17. Order book is forecasted at 15 machines (vs. 23 in 4Q17) in the next 3 months with moderate demand from customers from SEA and Taiwan. 1Q18 revenue is projected to be ranging RM10-15m (mid-point: -53% QoQ and +4% YoY). Special emphasis on China by engaging new SCPs and establishing technical support presence at strategic locations.
• ABI: Sales surged by 2% QoQ and 27% YoY to account for 63% of 4Q17 turnover. Backlog on 31 Jan stood at RM39.5m broken-down into 24 and 10 machines of 3D AOI and 3D AXI, respectively. 1Q18 revenue is estimated at RM50-53m (mid- point: -9% QoQ and +12% YoY). Plans to penetrate India by acquiring new SCP to reach non-corporate MNC with high growth opportunity. Its M2M capability is expected to garner strong interest as customers are moving towards Industry 4.0.
• By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 1Q18 sales could potentially expand 9% YoY but decline by 21% QoQ to RM76.0m.
• ViTrox’s book-to-bill ratio remains healthy at 1.0 in Dec 17.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ↔ , TP: RM5.85 ↔

• 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. However, MVS-S sales are highly dependent on single customer and majority of sales are non-recurring.

Valuation

• Maintain HOLD with unchanged TP of RM5.85, pegged to P/E multiple of 22x of FY19 EPS.

Source: Hong Leong Investment Bank Research - 26 Feb 2018