We maintain HOLD on ViTrox Corp (ViTrox) with an unchanged fair value of RM7.60/share. This is based on FY23F PE of 36x, equal to its 3-year average. We ascribe a 4-star ESG rating to ViTrox, which adds a 3% premium to our valuation (Exhibit 4).
1QFY23 core net profit of RM33mil accounts for 15% of our full-year FY23F earnings and 16% of consensus. No changes were made to our earnings as we deem the results to be largely within expectations given the anticipation of recovering demand in 2HFY23, particularly from semiconductor back-end customers.
In line with net earnings, 1QFY23 revenue of RM133mil (- 30% QoQ, -28% YoY) stands at 17% of our full-year forecast. The decline in sales compared to the same period last year was mainly attributed to lower demand for Machine Vision System (MVS) equipment.
Consequently, ViTrox’s 1QFY23 core profit dipped 35% YoY, in tandem with the drop in the group’s revenue and deterioration of EBITDA margin by 1%-point, likely due to the unfavourable forex trend.
QoQ, 1QFY23 core profit declined 38% as revenue dropped 30%, attributable to the temporary downturn of Automated Board Inspection (ABI) and Machine Vision System (MVS) demand. Notably, EBITDA margin deteriorated 4%-points due to weaker operating leverage.
Despite the weak earnings reported, we believe the group’s well-diversified revenue base and exposure to high-growth industries remain the company’s bright spots. ViTrox’s diverse geographical presence also might help the company to capture new customers resulting from trade diversion caused by the US-China chip war, particularly in Mexico and ASEAN region.
The group is also taking a longer-term view on the situation in China by continuing to provide support to its customers despite slower-than-expected demand recovery, aiming to capture more market share and position for the next market upcycle.
At 34x FY23F PE, the stock is trading above its 5-year historical average of 32x. We believe the stock is fairly valued at this level.
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