ViTrox’s FY18 core net profit of RM104m (+23% YoY) matched ours and consensus estimates. The sequential strength was mainly driven by ABI which more than sufficient to offset the weaknesses in all other products. According to SEMI, global semiconductor equipment market is staged for a reset in 2019 with an expected slowdown of 4%. We maintain HOLD call with unchanged TP of RM6.72 pending analyst briefing today. Our fair value is derived based on PE multiple of 20x of FY19 EPS.

Within expectations. FY18 revenue of RM395m (4Q18 sales was above guidance by 7%) translated into a much anticipated core net profit of RM104m, accounting for 104% and 101% of ours and street’s full year forecasts, respectively.

Dividend. None (4Q17: none). YTD amounted to 1.75 (FY17: 4.5) sen per share pending final dividend which is usually announced and distributed later.

QoQ. Aided by favourable forex, top line was higher by 9% thanks to higher contribution from ABI which has expanded 19%, more than sufficient to offset the weaknesses in all other products. After one off adjustments, core net profit softened by 10% with slight margin improvements and lower tax rate.

YoY. Turnover saw a gain of 15% as ABI’s 41% growth outweighed the MVS’ 22% decline. The increase in ABI was mainly due to higher demand from wider customer base. In turn, core earnings expanded by 27% attributable to enhanced EBITDA margin on the back of better economies-of-scale.

YTD. Despite the stronger RM, revenue and core earnings gained 21% and 23%, respectively for the same reasons mentioned above.

Unit shipments in 4Q18. MVS-S: 476 (2Q18: 634), MVS-T: 9 (11), AOI: 35 (62), AXI: 36 (25) and ECS: 2,151 (4,209).

Sector outlook. SEMI posted USD1.9bn in billings worldwide in Jan 2019 (3-month average basis), down 11% MoM and 21% YoY. According to SEMI’s latest report, global semiconductor equipment market is staged for a reset in 2019 with 4% contraction before expanding strongly in 2020 by 21% to reach all-time high of USD72bn.

Forecast. Unchanged pending analyst briefing today. Maintain HOLD with unchanged TP of RM6.72 pending further update from today’s analyst briefing. Our TP is derived based on PE multiple of 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 - 27 Feb 2019