INVESTMENT MERIT

- Doubling capacity. VITROX has doubled its manufacturing floor to 60k sq ft (from 30k sq ft previously) following the completion of its phase 2 floor expansion at its new HQ located in Bayan Lepas, Penang. The latest floor expansion has enabled the group to double its machine capacity to 60 machines per month and cater for the anticipated rising demand for its high-end inspection system –Automated Board Inspection (“ABI”).

- 10 new products in the pipeline. Management is targeting to unveil 10 new products in FY13 to further enrich its product mix. The new products in the pipeline include two machines from the ABI segment, and three and five machines from the ECS (“Electronics Communications System”) and MVS (“Machine Vision System”) segments respectively. Noteworthy is that the group is currently sitting on an approximately RM10m order book.

- A slow start in FY13. Management is guiding for flat YoY results for its upcoming 1Q13 earnings due mainly to 1) seasonality factors, 2) a delay in product delivery as some of its machine procurements worth a total of RM7.0m have been delayed to 2Q13 and 3) higher operating expenses as a result of the recruitment of more sales personnel and engineer staffs to boost its top line and develop more innovating new products for the future growth of the company. Note that the group recorded a net loss of RM0.9m in 1Q12.

- Aiming to achieve a low double-digit net profit growth in FY13. Despite an expected lacklustre start in 1Q13, management remains optimistic in achieving a low double-digit net profit growth in FY13, underpinned by the recovery of the global semiconductor industry as well as the higher demand for its new products such as PCA-AXI printed circuit assembly and MVS-T. According to management, these new products have been received well by various industries such as the semiconductor industry for back-end testing purposes and the electronics industry for developing smart connected devices in tablets/smartphones.

- Fully valued for now. VITROX is currently trading at 7.0x FY13 PER, in line with its 3-year historical average PER of 7.4x. We believe that the stock is already fairly valued at its current price in view of the group’s choppy earnings as a result of the cyclical semiconductor business. Nevertheless, we will review the company again should its earnings come in better than our expectation.

SWOT ANALYSIS

- Strength: World class inspection technology systems and innovative products

- Weaknesses: Small market capitalisation.

- Opportunities: Increasing its sales force to expand its market share in countries such as Taiwan, China, Korea, USA, and SEA.

- Threats: The slowdown in the semiconductor industry.

TECHNICALS

- Resistance: RM0.745 (R1), RM0.80 (R2)

- Support: RM0.62 (S1), RM0.58 (S2)

- Comments: VITROX has been on a downtrend for almost two years. However, the share price looks to have marked a bottom in recent months and its downside risk appears capped at RM0.58. From a technical perspective, “the last seller may have already sold”.

Source: Kenanga