ViTrox’s much anticipated 1Q21 core net profit of RM31m (-13% QoQ, +51% YoY) was second highest in its history despite seasonal weakness. On YoY basis, all product lines registered admirable expansions. It is experiencing robust demand across all business units and is expanding its manufacturing capacity by at least 30% in FY21 while continue to focus on prudent cost control measures, market expansion activities, customer relationship building and product innovation. Reiterate BUY with a higher TP of RM17.95. We opine that global CM/EMS’ large scale relocation, expansion and order diversion activities will create an insatiable demand for its products.

In line. 1Q21 core net profit of RM31m (-13% QoQ, +51% YoY) was ViTrox’s second highest ever recorded, accounting for 14% of HLIB and consensus full year estimates. This is deemed to be in line as 1Q is traditionally the weakest quarter. 1Q21 one-off items include net forex gain (-RM1.2m), net inventories written down (+RM1.5m), amortization of deferred income (-RM66k), gain on PPE disposal (-RM431k) and impairment gains on financial assets (+RM328k).

Dividend. None (1Q20: none). However, recently it announced the ex-date of FY20’s final tax-exempt dividend of 3.95 sen per share to be on 29 Jun 2021.

QoQ. Besides the unfavourable forex (1Q21: RM4.06/USD vs 4Q20: RM4.11/USD), top line lost 19% to RM130m with ABI as the sole decliner (-36%) due to global material shortage and transportation challenge. Other product lines recorded growths led by ECS (+22%), followed by MVS-S (+8%) and MVS-T (+3%). However, core net profit fell by a smaller quantum of 13% attributable to favourable product mix yielding higher EBITDA margin.

YoY. Despite the less favourable forex (1Q20: RM4.17/USD) environment, turnover swelled by 44% driven by all product lines: MVS-S (+126%), MVS-T (+113%), ABI (+3%) and ECS (+83%). Filtered down, core earnings expanded by 51% to RM31m on the back of improved operating leverage and lower D&A (-22%).

Book-to-bill. Ended 1Q21 With 1.2x.

Outlook. 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. It is cautiously optimistic on FY21 business prospect with the acceleration of digital adoption and transformation throughout the world amidst Covid-19 pandemic. ViTrox is experiencing robust demand from various sectors, especially in 5G, EV, computing and AI. At the same time, it is expanding its manufacturing capacity by at least 30% in FY21 while continue to focus on prudent cost control measures, market expansion activities, customer relationship building and product innovation.

Forecast. As we update our model based on audited FY20 annual report, FY21 EPS is revised by -4% while FY22’s is unchanged.

Reiterate BUY with a higher TP of RM17.95 (from RM16.88) after lifting our PE multiple from 45x to 48x, pegged to 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 - 23 Apr 2021