Post briefing note: ViTrox Corporation (VITRO MK; BUY; TP: MYR4.05) - Prospects remain intact

Results Review: ViTrox Corporation (VITRO MK; BUY; TP: MYR4.05) - Prospects remain intact

• Better earnings in the next 2 quarters. Order backlog remains strong at MYR22m at end-May, having fulfilled MYR68m of purchase order YTD as at end-May. The strong orders were mainly at the MVS-S and ABI division as clients, mainly semiconductor companies, ramp up to support the expansion in the internet of things (IoTs) and server farms. Slowdown was however seen at the MVS-T division which caters more towards the PC/notebook semiconductor chip market.
• Playing it cool. As of now, management conservatively expects 1H15 revenue to be flat YoY (1H14: ~MYR88m) having considered (i) stronger QoQ 2Q15 demand for the MVS-S and ABI division which offsets (ii) weaker YoY 2Q15 revenue at the MVS-T division. However, management also does not discount the possibility of last minute orders for its MVS-T division in 2Q15, a repeat of 2Q14’s episode where actual group revenue of MYR65m for FY14 exceeded management’s initial expectation of ~MYR52m.  
• Update on pioneer status. The result of ViTrox’s pioneer status application renewal will likely be known by end-May. Conservatively, we have assumed a 22% effective tax rate for 2Q15 and 3Q15 earnings. Depending on the new terms of the pioneer status renewal, there could be a writeback for taxes paid in 2Q15.
• Inexpensive valuation. Our views and earnings forecasts are unchanged. ViTrox remains in the forefront to capture the upgrade/replacement demand for the ~400 units of AXI (~MYR150m order p.a. for next 3 years) which provides earnings visibility. Valuations are inexpensive at 12.1x CY16 PER. Our TP of MYR4.05 offers a 12% upside.