• Fair value of RM4.75 implies +35% upside. Changing coverage, we raise Vitrox's fair value to RM4.75 (from RM4.50) and retain BUY. We use a target PE multiple of 38x, which is in line with its 5-year average, and CY26 EPS. Albeit at a premium to the industry average for equipment makers, we believe this is well deserved. Distinguishing itself, the group boasts product leadership for its AXI (automated x-ray inspection) equipment and has a diversified customer base, comprising of the top 10 EMS (electronics manufacturing services) and OSAT (outsourced semiconductor assembly and test) companies.
• Book to bill ratio increased from 1.1x to 1.2x. A book to bill ratio above 1x is considered healthy, signaling the recovery is intact. Although 4Q24 revenues were guided lower at RM106m and RM128m, we view this temporary. This is mainly due to delivery delays associated with the US elections and product issues (at customer level) that require ironing out. Albeit at the upper end of management's guidance, 9M24 earnings missed consensus' lofty expectations at 62% of estimates. 3Q24 revenues grew +7% QoQ and would've been higher if not for the strengthening ringgit. Adjusting for forex losses, Patami margin of 24% is the highest in six quarters.
• Launching new models in 2025. While the broader market has been soft, management has been spending more on R&D (partly impacting profitability) to keep ahead. R&D expenditure increased 16% YoY to RM42m. New products featured during the briefing are the V510iR (360 degrees 3D inspection) and a new premium QX series, which offers higher resolution and speed. Management is also developing machines for new advanced packages, to help customers improve yields.
• China competition concerns overplayed. While we do not disregard the threat of Chinese competition, we view it as manageable. The group is still competing effectively in China, with 9M24 sales to the country increasing +10% YoY (see Exhibit 5). Its products continue to maintain an edge in the ABI (automated board inspection) and MVST (machine vision system tray) segments. While the group does acknowledge to market share loss (at customer level) at MVSS (machine vision system standard), this represents a smaller 8% of 9M24 revenues.

Source: AmInvest Research - 28 Oct 2024