ViTrox Corp (VITRO MK; BUY; TP: MYR4.10) - 1H16 shortfall; D/G to HOLD

We have a results note on ViTrox today.

ViTrox Corp (VITRO MK; BUY; TP: MYR4.10) - 1H16 shortfall; D/G to HOLD

• Strong topline growth marred by higher costs. 1H16 impressive YoY revenue growth of 56% was well in-line (49% of our FY16 revenue forecast), but earnings fell short with a core net profit of MYR25m, at just 36%/40% of our/consensus FY16 forecasts. The key variance with our estimates lies in the operating expense as well as tax expense. We understand that opex was inflated by performance bonus expenses. Tax expense was also higher than expected as we did not take into account the normal tax rates for service income which has already ballooned to >10% of group revenue. We keep our forecasts pending a briefing today.
• Remain positive, but upside has narrowed. We remain positive on ViTrox’s new inroad into wafer/non-tech inspection equipment which would further diversify its earnings portfolio from semiconductor/EMS based. While success in these ventures could unlock ViTrox’s addressable market to a whole new level, we have yet to incorporated this in our forecasts. For now, there is just a 5% upside to our TP with valuations at 14x CY17 PER (+1SD mean); the stock is now a HOLD.