ViTrox Corp (VITRO MK; HOLD; TP: MYR3.80) - Below expectations

ViTrox Corp (VITRO MK; HOLD; TP: MYR3.80) - Below expectations

• Still limited upside for now. While 9M16 topline was well in-line (75% of our FY16 revenue forecast), earnings fell short with a core net profit of MYR40m, at just 65% of our FY16 forecasts. Key variance was in other operating income whereby grant income was lower than expected. We lower our other operating income and tweak our 2017 USD/MYR assumption to 4.15 (from 3.90 previously). As a result, our FY16-17 earnings forecasts are lowered by 3%-7%. Maintain HOLD with a lower TP of MYR3.80 (-3%), pegged on unchanged 14x CY17 EPS.
• 2017 is a key transition for future growth. ViTrox’ transition to its Campus 2.0, located in Batu Kawan, in 2H17 would see its manufacturing space triple in floor space to 450k sq ft. ViTrox is currently facing floor space constraint especially in the MVS-T and AXI divisions which are seeing strong demand. Without moving into a bigger facility, it will be challenging for Group revenue to grow beyond MYR300m-level (assuming USD/MYR of 4.00).