Investment Highlights

• We maintain BUY call on ViTrox Corp with an unchanged FV RM9.00/share, pegged to FY25F PE of 40x, 1 std deviati above the 5-year mean of 33x. We ascribe an unchanged 4-s ESG rating which incorporates a 3% premium to our valuation.

• Our forecasts are maintained following an analyst briefing la Friday. Key takeaways from the briefing are:
  
  ➢ To recap 1QFY24 results, Virtox’s core net profit decline 30% QoQ was mainly due to higher R&D expenditure new product introductions (RM4mil), lower automat board inspection (ABI) demand (-12% QoQ) from Mexi and lower machine vision system (MVS) purchases (-25 QoQ) and higher service cost on component parts failu for service contract customers (RM3-5mil).
  
  ➢ In the near term, we are still seeing a pickup in busine activities but orders are still slow in the consum electronics and back-end semiconductor sectors due economic uncertainties. Vitrox guided for a revenue RM121-140mil in 2QFY24 (MVS:40% and ABI:60% supported by deliveries of new and some existing orde that have been pushed back in 1QFY24.
  
  ➢ We understand that Vitrox is facing certain challenges all segments such as (i) shipment deferments due to slowdown in automotive demand, with deliveries likely occur in 2HCY24, and (ii) intensive competition in China gain market share.
  
  ➢ Vitrox plans to address these challenges by revising selling prices and develop new and more cost-effecti models for its MVS tray (MVS-T) and ABI segment compete with local Chinese players. Consequently, anticipate a short-term margin squeeze resulting fro lower average selling price and an increase in R&D cos for new models.
  
  ➢ However, we maintain a positive outlook on the industry gradual recovery in 2HCY24 and beyond. We a comforted by the group’s well-diversified revenue stream beyond China and its aggressive pursuit of market sha within China.
  
  ➢ Vitrox anticipates a stronger 2HCY24 compared 1HCY24 due to:
  
  (i) higher sales from MVST segment, driven by stro demand from Chinese smartphone players,
  
  (ii) development of new models with AI features und MVS-T segment gaining traction, especially in t memory, high-performance computing and rad frequency segments for Chinese semiconduc suppliers, and
  
  (iii) recovery of pretax profit margin above 20% subsequent quarters vs.

• Vitrox’s 1QFY24 book-to-bill ratio is at 1.0x. Moving forward, we expect book-to-bill ratio continue to hover at 0.9- 1.0x quarterly driven by short orders and slow recovery in the industry.

• From a valuation perspective, the stock currently trades at an attractive FY25F PE of 34x vs. its 5-year peak of over 66x. 

Source: AmInvest Research - 29 Apr 2024