Investment Highlights

• We maintain BUY call on ViTrox Corp with an unchanged FV RM4.50/share, pegged to FY25F PE of 40x, 1 std deviation abo the 5-year mean of 33x. We ascribe an unchanged 4-star E rating which incorporates a 3% premium to our valuation.
   
• Our forecasts are retained following the analyst briefing Friday. These are the salient highlights:
   
  • The overseas share of Vitrox’s 1HFY24 revenue has risen 88% from 84% in 1HFY23, as local sales dropped 32% Y vs. a decline of 5% for overseas sales.
     
  • China accounted for the largest revenue segment, surg to 44% in 1HFY24 vs. 33% in 1HFY23. Orders from China h delivered impressive growth with 1HFY24 revenue rising 24% YoY as the country’s foundries ramp up th capabilities against the backdrop of US chip exp restrictions.
    
    However, sales to US customers declined to 13% in 1HFY from 15% in 1HFY23. US revenue decreased 21% YoY due overcapacity currently.
     
  • While automated board inspection (ABI) operations acco for the larger portion of 1HFY24 revenue, this segment fac sluggish recovery in semiconductor demand. Howev there is an order backlog of RM37mil with 3QFY24 reven guidance of RM75-RM85mil, which translates to 55%-62% Vitrox’s 2QFY24 revenue.
    
    Surface mount technology orders remain slow with limi long-term visibility, mostly below 2 months. Neverthele this could be cushioned by strong demand from Chi which is expected to contribute over 50% of 2HFY24 A revenue. This could be further supported by robust dema from India, which accounted for 10% of 1HFY24 A revenue.
     
  • Demand for machine vision system standard (MVSS) w robust in 1HFY24 and expected to be resilient over the n 6-12 months, premised on continuing efforts to penetr the huge end user market given existing legacy systems the industry. Vitrox has secured purchase orders upgrades on 3D checking light sources with AI detect features for packages as well as new Chinese origi equipment manufacturers (OEM).
     
  • The machine vision system tray (MVST) segment expected to deliver 35-45 machines (RM40mil-RM50mil) 3QFY24 with management’s 2H2024 demand guidance of machines.
     
• 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 deliver cutting-edge solutions, capitalising on opportunities presented by Industry 4.0 and AI boom.
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• At a FY25F PE of 37x, the stock is slightly above its 5-year historical average but below its peak of over 50x. With the positive tailwinds from rising global semiconductor demand for advanced chips, we expect the stock to continue trading at a premium to historical average. 

Source: AmInvest Research - 29 Jul 2024