Highlights

We left the analyst briefing feeling positive as ViTrox guided that the sales rebound in 2Q13 is sustainable on the back of optimistic industry outlook and expecting a stronger 2H13 which may eventually achieve another sales record year.

Diversification paid off as ViTrox has effectively reduced its reliance / risk on its initial product, MVS-S (with SRM as single largest customer) which once commanded more than half of the overall revenue (see Figure #1) with in-house innovations, including MVS-T and ABI.

2Q13 sales breakdown and comparisons: 2Q12 1Q13 2Q13 YoY (%) QoQ (%) MVS 7,913 3,111 14,394 82 363 ABI 12,973 8,857 12,996 0 47 ECS 1,842 956 966 -48 1 Total 22,728 12,924 28,356 25 119

MVS-T: order book of 8 units to be delivered over the next 2 months and expect its 3Q13 revenue to range between RM4-5m. Currently, MVS-T is undergoing qualifications with 6 customers in Taiwan, Korea, Philippines and Malaysia.

MVS-S: Although order backlog improved 83% qoq to one month with 110 systems compared to 60 systems in 1Q13, demand visibility remains low and expect sales to be lower between RM2-3m in 3Q13.

MVS sales breakdown according to products: 2Q12 1Q13 2Q13 YoY (%) QoQ (%) MVS-S 6,657 2,383 4,440 67 186 MVS-T 1,256 728 9,954 793 1,367 Total 7,913 3,111 14,394 182 463

ABI-PCA: Surge in demand from America as OEMs are strategically moving away from ODM (original design manufacture) to CM (contract manufacturer) driven by intellectual property, responsiveness, cost increase in Asia (China) and logistic lead time and cost issues. This has led to sustainable strong order flow with 10 AXI and 5 AOI machines worth RM12m in first 3 weeks of Aug.

ABI-PCB: Well received as it had delivered 2 AOI and 1 unit of VF-10 Verifier to clients in China. Machine testing and evaluation are also being conducted with new clients.

ViTrox is a prime beneficiary due to the depreciation of MYR against USD as ~75% of sales but only ~30% of costs are dominated in USD.

Risks

FOREX, downturn in semiconductor demand and equipment spending, patent infringement, technology imitation.

Forecasts

Unchanged.

Rating

HOLD, TP: RM0.74

Positives – ViTrox has growth potential in the ABI segment with the exit of Agilent from this market.

Negatives – ViTrox operates in a highly competitive market and prone to rapid advances in technology.

Valuation

Despite the positive outlook, currently valuations are already reflective, thus, we maintain HOLD call on the stock with unchanged target price of RM0.74 based on DCF with a WACC of 11.8% and TG of 0%.

Source: Hong Leong Investment Bank Research- 26 Aug 2013