ViTrox Corp (VITRO MK; BUY; TP: MYR4.00) - A decent start for 2016

We have a results on ViTrox and an update note on UMWH today.

ViTrox Corp (VITRO MK; BUY; TP: MYR4.00) - A decent start for 2016

• 1Q16 earnings (-33% QoQ, +7% YoY) in line; core net profit of MYR10m met 15% of our/consensus full-year forecasts. Bottomline aside, revenue was impressive with 1Q16 hitting MYR56m; highest ever recorded for 1Q. We keep our forecasts, BUY rating and MYR4.00 TP (14x CY17 EPS) unchanged pending briefing today.
• Resilient share price; undemanding valuations. Amongst the notable Malaysian semiconductor & equipment players, only ViTrox did not see share price weakness YTD (+6%). If the last three years are any indication, 1Q is typically ViTrox’s weakest quarter (1Q earnings makes up average 10% of annual net profit between FY13-15), offering upside to our forecasts for the current year.

UMWH Holdings (UMWH MK; SELL; TP: MYR4.50) - Confirms MYR2b new Klang plant

• Short-term negative, long-term positive.  UMW Toyota (UMWT), a 51% subsidiary of UMWH, has confirmed plans to build a new plant in Bukit Raja Industrial Estate, Klang – a strategic move for cost efficiency and potentially to cater for export. Nonetheless, the high capex for this, alongside UMWH’s investments into aerospace engineering could weaken UMWH’s balance sheet which already looks stretched (55% net gearing). Maintain SELL for now.
• A regional hub in the making? We believe that Toyota’s move could be strategic, potentially making Malaysia a secondary hub for selected models. Also, there could be new models in the pipeline; we believe that Toyota will not lay idle, allowing Honda to take over market share. This is a strategic move considering also that Malaysia is a TPPA member, although the ratification process remains ongoing.