HLBank Research Highlights

Author: HLInvest   |   Latest post: Tue, 14 Jul 2020, 9:56 AM


ViTrox - Valuation Still Too Rich Despite Recovery

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ViTrox’s FY19 core net profit of RM82m (-21% YoY) missed our and consensus estimates. The moderation was mainly due the softness in MVS and ABI despite the favourable forex. According to SEMI, worldwide semiconductor equipment market is projected to grow 6% to USD61bn in 2020 but this has yet to take Covid-19 impact into consideration. We cut our earnings forecasts and this has led to lower TP of RM7.10, pegged to 24x of FY21 EPS. Maintain SELL.

Below expectations. 4Q19 core net profit of RM20m (+37% QoQ, -33% YoY) brings FY19 sum to RM82m (-21% YoY). This is a disappointment as it only forms 86% and 93% of HLIB and consensus full year estimates, respectively due to weaker-than expected top line and margin. 4Q19 one-off adjustments include provisions for forex (+RM1.5m), inventory (+RM1.7m), financial instruments (-RM0.7m), financial assets (+RM0.6m), PPE disposal (-RM1m), deferred income (-RM0.3m) and PPE write-off.

Dividend. None (4Q18: None).

QoQ. While USD/RM exchange was relatively stable, top line gained by 43% to RM95m chiefly driven by ABI (+70%), followed by ECS (+89%) and MVS-S (+4%), more than sufficient to offset the weakness in MVS-T (-8%). In turn, core net profit jumped by 37% despite weaker EBITDA margin.

YoY. Turnover fell by 14% dragged by MVS-S (-36%) and ABI (-13%) as customer demand waned. However, this was partly cushioned by the expansions in MVS-T (+7%) and ECS (+31%). Subsequently, core earnings declined by 33% to RM20m on the back of less favourable product mix and weaker economies-of-scale.

YTD. Top and bottom lines moderated by 14% and 21% respectively, chiefly due to the softness in MVS and ABI product lines. Stronger greenback which averaged RM4.14/USD (FY18: RM4.04/USD) did not help.

Book-to-bill. Above parity where Oct till Dec 2019 ratios were 1.0x, respectively.

Sector outlook. SEMI posted a preliminary USD2.3bn in worldwide billings for Jan 2020 (3-month moving average), down 6% MoM but up 23% YoY. Based on SEMI’s latest forecast, global sales of semiconductor manufacturing equipment by OEM is projected to gain 6% to USD61bn in 2020 fuelled by advanced logic and foundry, new projects in China, and, to a lesser extent, memory.

Forecast. Based on the latest financial figure and the deviations mentioned above, we cut our FY20-21 EPS by 2%, respectively.

Reiterate SELL with a lower TP of RM7.10, reflecting our earnings cut. Our TP is pegged to unchanged PE multiple of 24x of FY21 EPS. Despite its technology leadership, its outlook is clouded by trade tensions which delay investment decisions as well as its substantial China exposure which may be impacted by Covid-19. MVS-S sales are highly dependent on single customer and majority of its revenue are non recurring.


Source: Hong Leong Investment Bank Research - 28 Feb 2020

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