Investment Highlights

• We maintain BUY call on ViTrox Corp with an unchanged ex bonus FV of RM4.50/share (from RM9.00/share previously to account for a 1-for-1 bonus issue on 10 June), pegged to FY25F PE of 40x, 1 std deviation above the 5-year mean o 33x. We ascribe an unchanged 4-star ESG rating which incorporates a 3% premium to our valuation .

• We lowered our FY24F earnings by 15%, assuming a mor conservative sales estimate as the group’s 1HFY24 result fell short of expectations. 1HFY24 core net profit o RM45.3mil only accounts for 27.9% of our earlier FY24F earnings and 28.2% of consensus. As a comparison, 1H202 accounted for 52% of FY23 core net profit. However, w believe that 2QFY24 might be the bottom and anticipate stronger sales in 2HFY24 compared to 1HFY24. Hence, w maintain FY25F-FY26F earnings for now.

• YoY, 1HFY24 revenue slipped by 9.2%, mainly attributed to lower revenue from automated board inspection (ABI) partially offset by the growth contributed by machine vision system (MVS) division. 1HFY24 core net profit declined by 34.5% YoY in tandem with the lower revenue and highe operating costs as EBITDA margin dropped 6.1%-point to 20.8%.

• QoQ, 2QFY24 revenue improved by 14.7% thanks to gradua recovery in the semiconductor industry as MVS seized th opportunity to gain higher sales orders overseas. Moreover 2QFY24 PBT increased significantly by 62.5% QoQ due to favourable sales mix coupled with various cost-saving initiatives and strategies implemented.

• Despite the reported 1HFY24 weak earnings, we find comfor in the group's well-diversified revenue base and its exposure to high-growth industries, which are the company's brigh spots. Hence, we anticipate a substantively stronger 2HFY2 demand from its Automated Board Inspection (ABI) and Machine Vision System (MVS) segments as compared to 1HFY24.

• Additionally, ViTrox's geographical diversity may play a crucial role in capturing new customers arising from trade diversion due to the US-China chip war, particularly in Mexico and the ASEAN region.

• Moving forward, the group is confident in achieving steady growth and improvements in the semiconductor back-end sector as Vitrox plans to vigorously invest in R&D to delive cutting-edge solutions, capitalising on opportunitie presented by Industry 4.0 and AI boom.

• At a FY25F PE of 37x, the stock is slightly above its 5-yea historical average but below its peak of over 50x. With th positive tailwinds from rising global semiconductor demand for advanced chips, we expect the stock to continue trading at a premium to its historical average.

Source: AmInvest Research - 26 Jul 2024