Investment Merits

• Rebound of the semiconductor industry to support growth in orders
• Well-positioned to capitalise on emerging market trends, ie EVs and solar energy
• Strategic partnerships for business expansion and diversification

Company Profile

TT Vision Holdings (TTV) is involved in the development and manufacturing of machine vision equipment, and the provision of related products and services. Its equipment, furnished with vision inspection modules, is primarily used for the inspection of optoelectronics, solar cells, discrete components, and integrated circuits (ICs). It is also used in vision-guided robotic equipment. TTV’s business activities typically entail equipment design, software development, and the manufacture, assembly, and installation of equipment and/or modules.

Highlights

Recovery of the semiconductor industry. With the imminent ending of the inventory correction phase as well as increased demand for smartphones and artificial intelligence (AI) applications, World Semiconductor Trade Statistics adjusted its 2024F semiconductor market valuation upwards to USD588.4bn, representing a 13.1% increase from 2023’s USD520bn. The growth is expected to be driven by the memory sector, with other key segments ie discrete, sensors, analogue, logic, and micro anticipated to see modest upticks. In parallel, the group is seeing a gradual increase in orders and demand across all customer segments. To accommodate this growth, TTV is doubling its production capacity and floor space to 105,000 sq ft from the current 53,000 sq ft.

Rise of EVs to bolster orders. Its optoelectronic inspection equipment unit, primarily geared towards examining LED components for the automotive sector, stands to benefit from advancements in the EV industry. As per Fortune Business Insights, the size of the global EV market grew to USD384.7bn in 2022. Forecasts suggest further growth, with the market size projected to increase to USD1,579.1bn by 2030 from USD500.5bn in 2023, representing a CAGR of 17.8% for 2023- 2030F. The Asia-Pacific region is anticipated to lead this growth.

Riding the surging solar tide. In 2023, global renewable energy (RE) capacity surged by 50% to nearly 510GW. Solar photovoltaic (PV) accounted for c.75% of the total global additions, as reported by the International Energy Agency’s (IEA) Renewables 2023 report. Projections by the IEA point to promising growth – 3,700GW of new RE capacity addition by 2028F.

The increase will predominantly revolve around solar PV and wind – jointly commanding a 95% share of the global RE landscape. This augurs well for TTV as a key player in manufacturing solar cell inspection equipment. As of Dec 2023, the group’s orderbook stood at MYR68m, with close to 90% coming from the solar segment.

Strategic partnerships for business expansion. To diversify and further capture the growing solar market, TTV partnered Autowell Singapore (ASPL) – with a 15% stake in the JV – to establish a manufacturing hub in Malaysia that focuses on producing automation equipment and related hardware and software products, mainly on solar energy applications. The two entities will engage in R&D, as well as the manufacturing and distribution of products targeted at the ASEAN, European, and US markets. To finance the JV, the group is undergoing a private placement offering up to 23.4m shares or 5% of its enlarged share base to raise c.MYR25m.

Company Report Card

Results highlights. FY23’s recorded revenue of MYR58.2m increased 9.8% YoY, driven by an improvement in sales of discrete components and IC inspection equipment, solar cell inspection and sorting equipment, and vision-guided robotic equipment. Correspondingly, its core net profit increased 7% to MYR12m after stripping out one-off IPO listing expenses.

Balance sheet. As of FY23, TTV has a net cash balance of MYR30m. The group’s current balance sheet capacity should allow for future business expansion.

Dividends. There is no dividend policy and we do not anticipate one in the near future, given its continued focus on expansion and growth initiatives.

Management. TTV is led by co-founders Goon Koon Yin (CEO), Wong Yih Hsow (COO), and Jennie Tan Yen-Li (Chief Human Resources & Administration Officer). Goon and Wong have more than 20 years of technical and operational experience in the machine vision equipment business, and are supported by Tan, who has around 26 years of experience in human resources and administration.

Investment Case

FV. Based on a target 30-35x P/E on FY24F diluted earnings, we derive a FV range of MYR1.40-1.64. On a pro forma basis, EPS dilution would be at 5%, assuming the maximum scenario before taking into account the utilisation of proceeds. The target P/E is within the range of the 5-year mean for local equipment players (20-40x). We forecast TTV to sustain its earnings growth in FY24-26, implying a continuous 7-year streak of growth. Growth stems from higher order volumes, driven by a positive semiconductor industry outlook, coupled with increasing demand for EVs and RE solutions. Strategic partnerships and diversification of offerings could provide potential upside for TTV’s earnings.

Key risks include technology obsolescence, weaker-than-expected sales, and unfavourable FX rates.

Source: RHB Securities Research - 15 May 2024