With more floor space and additional tax incentive, ViTrox remains upbeat and expect to conclude FY18 with another record performance. ABI remains the main growth driver offsetting the slack in MVS-T. 4Q18 sales could potentially increase 8% YoY and 2% QoQ to RM103.8m, another quarterly all-time high. Bill to-book is still healthy at 1.1x despite lower than 2Q18’s 1.3x. We keep our FY18-20 forecasts as well as TP of RM6.72. Thus, we maintain HOLD as valuation appears to be very rich relative to industry standard.

Outlook. Despite the sequentially flattish 3Q18, business prospect remains bullish while Campus 2.0 with more floor space allows ViTrox to take more orders. Recently, its pioneer status was extended to include “sales of related module” which are related to upgrade services. The recent greenback appreciation is a boon while raw material sourcing issue is resolved.

MVS-S. 3Q18 sales grew 38% YoY but fell 12% QoQ, and contributed 18% of overall sales. 4Q18 order backlog declined to 342 vs. 440 systems in 3Q18. While order forecast turned slightly soft, 4Q18 turnover projection is stable at RM15-18m (mid point: +45% YoY and -2% QoQ). For 2019, product roadmap includes (1) vision software upgrade to 64-bit OS; and (2) develop wafer vision inspection solution to support both 8” and 12” bare and framed wafer.

MVS-T. 3Q18 sales expanded marginally by 3% YoY but fell 40% QoQ, accounting for 14% of overall sales. Expect to deliver 10-15 units in 4Q18 vs. 11 in 3Q18 and 24 in 3Q17. Demand outlook is flat into 4Q18 against its earlier anticipation of stronger orders to return. 4Q18 revenue is projected to be ranging RM10-15m (mid-point: -53% YoY and -10% QoQ).

ABI. Sales surged by 21% YoY and 14% QoQ to account for 66% of 3Q18 turnover. Again, backlog topped all-time high at RM70m for 30 units of AOI and 33 units of AXI. 4Q18 revenue is estimated at RM70-75m (mid-point: +28% YoY and +8% QoQ). Demand growth is coming from telecommunication and automotive segments as well as 5DX replacement plan. AXI capacity expansion plan from 12 to now 16 units per month still unable to address lead time issue and may result in forgone orders.

4Q18 guidance. By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 4Q18 sales could potentially increase 8% YoY and 2% QoQ to RM103.8m, another quarterly all-time high.

Book-to-bill. Softened to 1.1x at the end of 3Q18 vs. 2Q18’s 1.3x.

Forecast. Unchanged.

Maintain HOLD with unchanged fair value of RM6.72, 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 - 29 Oct 2018