Investment Highlights

• We raise our FY21–23F net profit forecasts by 14%, 18% and 19% respectively and increase our fair value (FV) by 12% to RM13.43/share (from RM12.03/share previously), pegged to an FY22F P/E of 33x. These are largely to reflect stronger sales assumptions for ViTrox’s machine vision systems (MVS) and automated board inspection (ABI) segments. There is no FV adjustment for ESG based on a 3-star rating as appraised by us (Exhibit 4). Maintain SELL.

• Our target P/E of 33x is in line with the benchmark target P/E for large-cap automated test equipment (ATE) players, given the group’s technology leadership and higher market cap.

• The benchmark 33x P/E also represents a 50% premium over the group’s 3-year historical forward P/E of 22x as prospects brighten for the ATE sector riding on innovations such as 3D sensors, Industry 4.0, electric and autonomous vehicles and 5G. Accelerated by the Covid-19 pandemic, these innovations have also benefitted from the US-China tech decoupling.

• ViTrox’s 1HFY21 core profit of RM85mil beat expectations, coming in at 61% and 58% of our full-year forecast and fullyear consensus estimates respectively.

• Its 1HFY21 revenue and core profit jumped by 75% and 78% respectively on strong demand of MVS which we believe was likely due to higher orders from Taiwan and China. In FY20, MVS was the second largest revenue contributor (41%) after the ABI segment (57%), while the remaining 2% came from the electronics communication system (ECS) segment.

• ViTrox’s near-term prospects are bright, driven by the 5G rollout globally, electric vehicles (EVs), computing and artificial intelligence (AI). It plans to expand its manufacturing capacity by at least 30% in 2021. However, the group has to deal with the headwind arising from the shortage of certain inputs.

• We like ViTrox for its attractive MVS and ABI product offerings driven by innovation and strong growth potential underpinned by a significant inroad into the high-growth markets in Taiwan and China. However, the upside potential to its share price is capped given the lofty valuations of 53–43x our FY21–22F earnings.

Source: AmInvest Research - 23 Jul 2021