ViTrox Corp (VITRO MK; BUY; TP: MYR4.10) - Strong momentum to sustain

ViTrox Corp (VITRO MK; BUY; TP: MYR4.10) - Strong momentum to sustain

• Demand visibility spills over to 3Q16. The technology equipment industry generally has low visibility (<3 mths) and rides on capex drives of semiconductor/EMS players. We came out from yesterday’s briefing excited on ViTrox’s demand visibility which has spill over to 3Q16 with MYR40m order backlog as at early-May. Book-to-bill ratio is on an uptrend, showing signs of healthy order replenishment. We lift our FY16-18 net profit forecasts by 2%-4% on higher sales volume, partially offset by lower USD/MYR forex assumption. Our TP is raised to MYR4.10 (+3%) on unchanged 14x CY17 EPS.

• Entry into wafer level/non-tech inspection. We are also thrilled by ViTrox’s new inroad into wafer inspection equipment which should see the first unit delivered in 3Q16; moving up the value chain to front-end semiconductor. Elsewhere, ViTrox has also secured 3 equipment orders for its entry into non-tech related inspection (i.e. automotive fabricated & consumer products) with its new Robotic AOI inspection systems (which employ the use of robotic arms) which can be further developed to inspect various other products. Success in these ventures could unlock ViTrox’s addressable market to a whole new level.
• New offering + Wider market = Better dynamics. ViTrox’s business model is changing for the better. Wider customer base, and enlarged addressable market from new forays should smoothen its business volatility. With increasing installed base of its equipment, its services and data analytics offering would also provide a higher recurring income. As such, we continue to stay positive on ViTrox’s outlook.