ViTrox Corp Bhd is an automated vision inspection solutions provider, with more than 900 customers across key markets (US, China, Japan, etc.).
It was listed on the Main Market in 2009. ViTrox has amassed a diversified regional client base, which includes original equipment manufacturers, outsourced assembly and testing players, and electronic manufacturing service (EMS) providers, catering to a wide array of end-industries, such as telecommunications, automotive, consumer electronics, industrials, and consumer goods.
Riding on the semiconductor recovery
CGS International (CGS), in its Company Note on Friday (Mar 29), said they believe ViTrox is poised to benefit from the recovery in the global semiconductor industry heading into 2024F; global microelectronics industry association SEMI expects global sales of semiconductor equipment to rebound by 4.4% in 2024F.
CGS also believes the demand for automated vision inspection machines is on the rise given the pursuit of automation and improvements in manufacturing efficiency, with key growth industries for ViTrox being electric vehicles (EV), artificial intelligence (AI), as well as 5G telecoms.
EPS growth likely to resume in FY24F
Following a 37% yoy decline in core net profit in FY23F, CGS projects ViTrox’s FY24-26F EPS to grow by 16.6-36.8% as they believe shipments of its automated board inspection and machine vision system products will increase on broad-based demand recovery while blended ASP should grow as the company has said it will narrow discounts and improve its sales mix via high-end products with enhanced features.
CGS also sees a gradual improvement in margins as they believe the company will lift its utilisation rates, increases its mix of service revenue, as well as acquires margin-accretive companies.
CGS Initiated coverage with a Hold call and TP of RM7.30
CGS initiated coverage on ViTrox Corp at Hold, with a GGM-derived TP of RM7.30 (WACC: 9.5%, LTG: 6.5%, sustainable ROIC: 30.6%).
The stock is trading at 32.1x FY25F P/E, a tad above its 8-year average of 31x but well above its pre-pandemic (FY15-19) average of 22.9x.
It is also trading at a premium over its vision inspection peer average of 24.6x and closer to global AI players’ 28.6x.
While CGS believes the company’s resilient track record and strong growth outlook warrant a premium valuation, they see limited room for multiples to expand beyond current levels.
Bloomberg consensus’s FY24-26F EPS have also been reduced 21-27% over the past 12 months to more reasonable levels, limiting further cuts, in CGS’s view.
Upside risks: stronger-than-expected shipment unit growth, uptick in ASP trend, and earnings-accretive acquisitions.
Downside risks: prolonged semiconductor weakness, heightened competition, and ongoing chip war that could impede order visibility.
