ViTrox Corp (VITRO MK; BUY; TP: MYR3.80) - Breaking records since 2013

We have a results note on ViTrox today.

ViTrox Corp (VITRO MK; BUY; TP: MYR3.80) - Breaking records since 2013

• Within our expectation but above street’s. FY16 core net profit came in at MYR61m, meeting 104%/109% of our/ consensus’ forecasts. This would be the fourth consecutive year of YoY growth in core earnings, a commendable achievement for ViTrox despite being in the cyclical technology sector. We keep our earnings forecasts pending an analyst briefing today. Maintain HOLD with an unchanged TP of MYR3.80, pegged to an unchanged 14x CY17 EPS (+1SD).
• Eight consecutive quarters of QoQ revenue growth. 4Q16 revenue continued to register QoQ growth (+11% QoQ, +33% YoY), an unbroken streak of sequential growth since 1Q15. This was driven by higher ASPs (due to the stronger USD against MYR) and stronger volume sales (+11% QoQ) in the ABI division (i.e AOI & AXI equipment). Coupled with a 1.4ppt expansion in blended EBIT margins, core earnings grew 23% QoQ to MYR20m (+30% YoY). Headline net profit in FY16 included a positive one-off (MYR4.2m net) mainly from the reversal of a tax provision of MYR5.5m following the renewal of its pioneer status.
• Better demand visibility ahead. Recall that ViTrox had entered into an agreement with Agilent Technologies to be one of the latter’s two worldwide outsourced service agents. This provides Vitrox with service access to Agilent’s customers for the AXI products until 2017/18 as the latter exits the business. As such, we see a stronger visibility for ViTrox’ AXI division from stronger replacement and upgrade demand by Agilent’s previous customers as their old equipment reach the tail-end of the 10-year replacement cycle.