ViTrox remains upbeat and guided for another record breaking 2Q18. However, we remain neutral and opine that this is reflected in the current rich valuation. All product lines are projected to experience solid gains on the back of strong demand. Tax rate should normalize once ECS’ pioneer status is renewed in 2Q18. Bill-to-book is admirable at 1.2x ended 1Q18. Reiterate HOLD with unchanged TP of RM5.24.

Upbeat Outlook: As we anticipated (refer to our report entitled “1Q18 Results Below Expectation” dated 27 April), 2Q18 guidance was bullish and could potentially record another all-time high quarterly revenue. However, we are not overly excited and believe that this has been priced in. Challenges remain including USD depreciation, raw material sourcing, floor space constraint and relocation to new Batu Kawan Campus 2.0.

MVS-S: 1Q18 sales grew 1% YoY and contributed 13% of overall sales. 2Q18 order backlog remains solid at 538 vs. 476 systems in 1Q18. 2Q18 is expected to be rather flattish with turnover projection of RM15-18m (mid-point: +0.5 YoY and +67% QoQ). It plans to complete wafer vision inspection handlers (Wi8i) buy-off from a MEMS-based microphone manufacturer in Penang and Suzhou. Recall that we highlighted earlier (refer to our report entitled “Making FY18 another Record” dated 30 Mar) that ViTrox targets to double the shipments to 4 units in FY18 as part of the aspiration to move up in the semiconductor supply chain which may yield better margin.

MVS-T: Due to seasonal and high base effects, 1Q18 sales declined 17% YoY and 63% QoQ, accounting for 13% of overall sales. Expect to deliver 20-25 units in 2Q18 vs. 10 in 41Q18 and 8 in 2Q17. Outlook is improving with demands from US, China, Philippines and Taiwan. 2Q18 revenue is projected to be ranging RM20-25m (mid point: +127% QoQ and +99% YoY). ViTrox shared that this is achieved based on normalized ASP, unlike in 4Q17 when high orders were secured at the expense of pricing. It will be pursuing TUV and CE certifications in order to better penetrate EU markets.

ABI: Sales surged by 19% YoY but fell 4% QoQ to account for 70% of 1Q18 turnover. Backlog is still very encouraging as of 6 April worth RM39.7m for 36 units of AOI and 19 units of AXI. 2Q18 revenue is estimated at RM53-56m (mid-point: +0.2% QoQ and +14% YoY). It is also expecting additional PO of circa RM20m for 4 different products. Capacity has reached bottleneck in order to win big deals which require output of 36 systems per month compared to current’s 24.

ECS: 2Q18 tax rate should revert to previous’ low level once MIDA renew its pioneer status. The expiry has caused an impact of circa RM500k in 1Q18.

2Q18 Guidance: By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 2Q18 sales could potentially expand 24% YoY but decline by 25% QoQ to RM96.3 m.

Book-to-bill: Improved to 1.2x at the end of 1Q18 vs. 4Q17’s 1.0x.

Forecast: Maintain.

Maintain HOLD with unchanged TP of RM5.24 pegged to 20x of FY19 EPS. 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 - 30 Apr 2018