ViTrox is expanding rapidly to ride on the rosy industry prospect which further exacerbated by the global supply limitation. Based on guidance, 1Q21 sales could potentially rise 46% YoY to RM132m but moderate by 17% QoQ mainly due to the sector’s general seasonal softness. Although it ended FY20 at 1.0x, our channel check reveal that this ratio has been in the uptrend in recent month. Upgrade to BUY with unchanged TP of RM16.88. We opine that global CM/EMS’ large scale relocation, expansion and order diversion activities will create an insatiable demand for its products.

Bullish outlook. Taking advantage of the global semiconductor supply constraint, ViTrox remains optimistic and aspires to outdo its record FY20. As the two-storey production floor space utilization hits 100%, it has renovated the third floor and ready for expansion. SEMI posted USD3.1bn (+3% MoM; +32% YoY) in worldwide billings for Feb 2021 (3-month average basis), a record high for the 2nd consecutive month.

MVS-S. 4Q20 sales grew 71% YoY but fell 4% QoQ, and contributed 12% of overall sales. FY20 turnover was higher by 25% YoY to reach RM62m thanks to solid order from 5G related mobile phones, networking devices, AIoT, computing, data centre and EV. Demand is expected to be strong into 1H21 with 1Q21 revenue forecast of circa RM20m (+113% YoY; +2% QoQ), with funnel forecast of RM16m until 2Q21. For FY21, product roadmap includes (1) vision system: 30% speed improvement for surface inspection and 3D BGA true ball height inspection; (2) 2mm pocket pitch inspection capability for VR20-GS; and (3) speed improvement with feature enhancement and smart threshold for Wi8i-G2.

MVS-T. 4Q20 sales surged by 261% YoY and 30% QoQ, accounting for 28% of overall sales. It was the lead growth driver for the group in FY20 with +215% YoY. Expect to deliver 38-45 units in 1Q21 vs. 44 in 4Q20 and funnel remains strong with 26 units. China and Taiwan are expected to contribute >75% of 1Q21 sales. Revenue projected to range RM38-45m (mid-point: +93% YoY; -7% QoQ). ViTrox is improving monthly capacity to >20 units through operational enhancement in planning, fulfilment and machine assembly.

ABI. Sales gained by 34% YoY and 38% QoQ to account for 58% of 4Q20 turnover. On the full year basis, turnover expanded by 10% YoY to top RM269m. 1Q21 revenue is projected to be RM65-72m (mid-point: +18% YoY; -27% QoQ) with extra backlog of RM46m in early Feb. Funnel grew strongest in the past 3 months reaching RM231m with more than half has high success probability. Opportunities of 63 AXI and 91 AOI coming from smartphones, 5G and auto clients. Key regions are seeing demand growths: Malaysia (+20%), Mexico (+87%), US (+38%), China and Taiwan (+21%).

1Q21 guidance. By summing the mid-points of guidance above and assuming flat sequential growth in ECS, 1Q21 sales could potentially rise 46% YoY to RM132m but moderate by 17% QoQ mainly due to the sector’s general seasonal softness.

Book-to-bill. Although it ended FY20 at 1.0x, our channel check reveal that this ratio has been in the uptrend in recent month.

Forecast. Unchanged. Upgrade to BUY with unchanged TP of RM16.88, pegged to 45x of FY22 EPS. We opine that global CM/EMS’ large scale relocation, expansion and order diversion activities will create an insatiable demand for its products. ViTrox’s technology leadership and asset-light business model will continue to drive growth going forward With the recent share price pullback, we think is a good opportunity to accumulate.

Source: Hong Leong Investment Bank Research - 1 Apr 2021