Update note: ViTrox Corporation (VITRO MK; BUY; TP: MYR3.90) - A weaker 2Q15

ViTrox Corporation (VITRO MK; BUY; TP: MYR3.90) - A weaker 2Q15

• Blip in 2Q15 earnings. Our checks suggest that 2Q15 net profit could be lower YoY at MYR12m-15m (2Q14: MYR21m) on (i) slower sales in the MVS-T division, (ii) higher taxes after the expiry of pioneer status on 1 Apr 2015. This would bring 1H15 net profit to MYR22m-MYR25m (1H14: MYR25m), meeting 37%-42% of our 12M forecast – still in line. The results are due out on 20 Aug 2015.
• Trimming our FY15-17 net profit forecasts by 2%-7%:

                     I.        cutting our  FY15/16/17 revenue forecast for MVS-T by 48%/25%/35% after imputing lower sales volume by 50%/29%/38%, partially offset by

                    II.        higher ASPs for most products (in MVS-T, AOI, AXI divisions) as we raise our average MYR/USD forex assumption by 4% to MYR3.60/USD1 (from MYR3.45/USD1), and

                            III.            reducing our tax rate assumption for FY15 to 9% from 15% to account for just one quarter of taxable income (previously 2) following the renewal of ViTrox’s pioneer status, from 1 Jun 2015, for another 5+5 years. ViTrox will now pay taxes for only one quarter of its earnings (spread across 2Q15, 3Q15) in FY15.

• Beneficiary of strong USD. ViTrox remains a prime beneficiary of the stronger USD (80%/30% of revenue/COGS denominated in USD), currently at MYR3.92/USD1, 9% above to our revised average. Our sensitivity analysis suggests that every 1% change in the MYR/USD rate will impact ViTrox’s bottomline by 2%.