ViTrox’s FY20 core net profit of RM110m (+34% YoY) beat ours but matched consensus estimate. Top line growth was attributable to higher contributions from all product lines leading to bottom line improvement on the back of higher efficiency. It is experiencing robust demand across all business units and has started expanding the manufacturing capacity by at least 30% in 2021. After lifting our forecasts and PE multiple to 45x, our TP is higher at RM16.88. Maintain HOLD. Although its technology leadership and asset-light business model will continue to drive growth going forward, its risk reward profile looks balanced at this juncture.

Beat HLIB but matched consensus. 4Q20 core net profit of RM35m (+15% QoQ, +79% YoY) brought FY20’s to RM110m (+34% YoY) which exceeded our full year forecast at 110% but matched consensus, accounting for 100%. The main deviation was higher-than-expected revenue contributions from MVS-T and ABI. FY20 one-off items include net forex loss (RM3.3m), net inventories written down (RM3m), PPE written off (RM37k), amortization of deferred income (-RM745k), impairment gains on financial assets (-RM345k), gain on PPE disposal (-RM759k), and fair value gains on financial instruments (-RM1.2m).

Dividend. None (4Q19: None).

QoQ. Despite the weaker USD/RM (4Q20: RM4.11/USD vs 3Q20: RM4.20/USD), top line gained by 29% to RM160m led by ECS (+91%), ABI (+38%) and MVS-T (+30%), more than sufficient to offset the decline in MVS-S (-4%). In turn, core net profit gained 15% mainly due to better economies of scale and lower effective corporate tax rate of 3.9% vs 3Q20’s 5.7%.

YoY. Under the less favourable forex (4Q19: RM4.16/USD) environment, turnover swelled by 68% driven by all product lines: MVS-T (+261%), MVS-S (+71%), ABI (+34%) and ECS (+39%). Filtered down, core earnings expanded by 79% to RM35m on the back of improved operating leverage and lower D&A (-22%).

YTD. For the same reasons above, top and bottom lines gained +39% (MVS-T: +216%, ECS: +55%, MVS-S: +25% and ABI: +11%) and 34%, respectively.

Book-to-bill. Ended 4Q20 With 1.0x.

Outlook. SEMI posted a preliminary all-time high USD3.0bn in worldwide billings for Jan 2021 (3-month moving average), +13% MoM and +30% YoY. ViTrox shared that so far it has been experiencing robust demand across all business units so far. It also encounters longer material lead time due to global shortage of certain raw material and it working vigorously to resolve the challenge. ViTrox has also started expanding the manufacturing capacity by at least 30% in 2021 in order to cope with the orders while continuing to take prudent cost control measures in order to stay competitive and resilient.

Forecast. Tweak our model based on the deviation mentioned above. As a result, FY21-22 earnings projections are raised by 5% and 4%, respectively. Reiterate HOLD with a higher TP of RM16.88 (from RM12.43) after lifting our PE multiple from 38x to 45x, pegged to FY22 EPS (previously mid-FY22 EPS). We opine that global CM/EMS’ large scale relocation, expansion and order diversions activities will create a big demand for its products. Although its technology leadership and asset-light business model will continue to drive growth going forward, its risk reward profile looks balanced at this juncture.

Source: Hong Leong Investment Bank Research - 25 Feb 2021