ViTrox’s 1H21 core net profit of RM83m (+89% YoY) was a beat accounting for 60%/57% of HLIB/street. On YTD basis, all product lines registered exceptionally strong growths. It is optimistic on FY21 business prospect with the acceleration of digital adoption and transformation throughout the world amidst Covid-19 pandemic. It will continue to focus on capacity expansion (+30%), aggressive material sourcing, securing supply chain collaboration, key markets expansion, new product innovation and Covid-19 risk mitigation to support robust demand from various sector, especially 5G, EV and AI. Reiterate BUY with a higher TP of RM23.28. We opine that global CM/EMS’ large scale relocation, expansion and order diversion activities will create an insatiable demand for its products.

Exceeded by a mile. Record-breaking 2Q21 core net profit of RM52m (+68% QoQ, +124% YoY) brought 1H21 sum to RM83m (+89% YoY), which smashed HLIB and consensus full year forecasts, accounting for 60% and 57%, as 2H is historically a stronger half (2H20 core PAT accounted for 60% of FY20’s). The positive surprise is attributable to the stellar revenue recorded. 1H21 one-off items include net forex loss (-RM918k), net inventories written down (+RM2.1m), amortization of deferred income (-RM209k), gain on PPE disposal (-RM431k) and impairment losses on financial assets (+RM635k).

Dividend. None (2Q20: None).

QoQ. Besides the favourable forex (2Q21: RM4.13/USD vs 1Q21: RM4.06/USD), top line surged 51% to RM196m as all product lines recorded remarkable growths led by ABI (+64%), followed by MVS-S (+43%), MVS-T (+40%) and ECS (+32%). As a result, core net profit gained at a quicker pace of 68% attributable to favourable product mix yielding higher EBITDA margin and lower effective tax rate.

YoY. Despite the less favourable forex (2Q20: RM4.32/USD) environment, turnover doubled driven by all product lines: MVS-T (+146%), ECS (+140%), MVS-T (+98%) and ABI (+95%). Filtered down, core earnings leaped by 124% to RM52m on the back of improved operating leverage, lower D&A (-22%) and effective tax rate.

YTD. Top and bottom lines swelled by 75% and 89%, respectively thanks to the same reasons above. In terms of products: MVS-S (+137%), MVS-T (+104%), ABI (+46%) and ECS (+111%).

Book-to-bill Remained Elevated at 1.2x at the End of 2Q21.

Outlook. SEMI posted USD3.6bn (+5% MoM; +53% YoY) in global billings for May 2021 (3-month average basis), a record high for the 5th consecutive month. ViTrox is optimistic on FY21 business prospect with the acceleration of digital adoption and transformation throughout the world amidst Covid-19 pandemic. For 2H21, it will focus on capacity expansion (+30%), aggressive material sourcing, securing supply chain collaboration, key markets expansion, new product innovation and Covid -19 risk mitigation to support robust demand from various sector, especially 5G, EV and AI.

Forecast. After raising revenue forecast, our FY21-23 EPS are lifted by 35%, 30% and 43%, respectively.

Reiterate BUY with a higher TP of RM23.28 (from RM17.95) pegged to unchanged 48x of FY22 EPS, reflecting the upward earnings revision. 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.

Source: Hong Leong Investment Bank Research - 23 Jul 2021