Friday, August 18, 2017

FW: Results: ViTrox Corp (VITRO MK; SELL; TP: MYR4.20) - Ripe for profit-taking

 

We have a results note on ViTrox Corp today.


ViTrox Corp (VITRO MK; HOLD; TP: MYR4.20) – Ripe for profit-taking

  • Risk-to-reward has turned. We lift FY17/18/19 net profit forecasts by 6%/8%/19% on higher volume sale across all divisions (2Q17 demand was strong); also to factor in ViTrox's expansion into Campus 2.0 by end-2017. Arguably a champion in the inspection equipment space, we believe that ViTrox deserves to trade at 19.5x FY18 PER (from 18x), a 20% premium over regional peers. Despite a higher TP of MYR4.20 (+17%), we believe that its near-term earnings growth potential has been fully priced in; downgrade to SELL.
  • Sequential revenue growth continues. 2Q17 core net profit of MYR19m (-3% QoQ, +28% YoY) took 1H17 core net profit to MYR38m (+54% YoY) and met 49% of ours and consensus' full-year forecasts – slightly above expectations in anticipation of a stronger 2H17. In 2Q17, despite solid revenue growth (+12% QoQ, +37% YoY) led by the MVS-S division (+63% QoQ), core earnings retraced 3% QoQ due to higher opex incurred for performance bonus allocation. 2Q17 headline net profit included a (i) MYR1.5m insurance claim for damaged goods and (ii) MYR0.2m net reversal of slow moving inventories.
  • But growth may slow in 2018. We believe that ViTrox would likely report another quarter of sequential revenue growth in 3Q17 before slowing down in 4Q17 on seasonality, as evident by the tapering of ViTrox' recent book-to-bill ratio. Nonetheless, July's book-to-bill ratio remains healthy (>1x) at 1.26x. Beyond 2017, strong demand by its customer may not repeat, thus earnings growth could be slower in 2018 despite (i) a capacity expansion into Campus 2.0 and (ii) the replacement cycle of the AXI equipment.
  • Take profit for now. Despite our earnings upgrade, ViTrox is trading at 22.3x CY18 PER for an expected 2-year (FY17-19) earnings CAGR of 20% (share price has soared 159% YTD). Valuations are also above its peer equipment players in the region.

 

 

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