Below Ours But Match Consensus: 1Q18 revenue of RM77m (as per guidance) translated into a core net profit of RM22m, accounting for 20% and 22% of ours and street’s full year forecasts, respectively.

Dividend: None (1Q17: none).

QoQ: Top line was lower by 19% due to seasonal weakness (shorter work days) and greenback depreciation. Compared with 4Q17, 1Q18’s MVS and ABI unit shipments were lower. Despite a slight improvement in margin thanks to favourable product mix, core net profit was lower by 7% attributable to higher effective tax rate due to expiry of ECS pioneer status and higher non-tax deductible service contribution.

YoY: Despite the stronger RM, turnover saw a gain of 11% as ABI revenue grew 19% leveraging on wider customer base and higher acceptance. Core earnings expanded by a small magnitude of 5% attributable to the tax issue as explained above.

Unit Shipments in 1Q18. MVS-S: 389, MVS-T: 10, AOI: 29 and AXI: 25

Inventory Level Implies Bullish 2Q18. 1Q18 inventory ended all-time high at RM97m (+35% QoQ, +39% YoY) even under management’s continuous emphasis. However, we perceive this positively and opine that this may be a leading indicator of a very strong 2Q18 ahead.

Sector Outlook. SEMI posted US$2.4bn in billings worldwide in Feb 2018 (3-month average basis), upped 2% MoM and 22% YoY. According to SEMI’s Dec 2017 report, global semiconductor equipment market is poised to stage a robust performance in 2018 with a YoY increase of 7.5% to reach US$60.1bn, another record breaking year.

Forecast: Tweak USD/RM (from 4.1 to 3.9) assumption and update model based on latest annual report. In turn, FY18-19 EPS were revised downward marginally by 6% and 2%, respectively.

Maintain HOLD after lowering our TP by 10% from RM5.85 to RM5.24 as we pegged it to a lower PE multiple of 20x (previously 22x) in line with its peers. 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.

Source: Hong Leong Investment Bank Research - 27 Apr 2018