ViTrox Corp Bhd
(May 25, RM3.52)
Maintain buy with an unchanged target price of RM4.05: We remain positive on ViTrox’s near- and mid-term earnings growth prospects post its first quarter financial year 2015 ended March (1QFY15) results briefing last Friday.

Its order backlog remains strong at RM22 million as at end-May, having fulfilled RM68 million of its purchase orders year-to-date as at end-May.

The strong orders were mainly at the machine vision system (MVS-S) and automated board inspection (ABI) divisions as clients, mainly semiconductor companies, ramp up to support the expansion of the Internet of things and server farms.

A slowdown was however seen at the machine vision system (MVS-T) division which caters more to the personal computer or notebook semiconductor chip market.

The management conservatively expects first half of FY15 revenue to be flat year-on-year (y-o-y), having considered stronger quarter-on-quarter 2QFY15 demand for the MVS-S and ABI divisions which offsets weaker y-o-y 2QFY15 revenue at the MVS-T division.

However, management does not discount the possibility of last-minute orders for its MVS-T division in 2QFY15, a repeat of 2QFY14, when actual group revenue of RM65 million for FY14 exceeded management’s initial expectation of RM52 million.

The result of ViTrox’s application for the renewal of its pioneer status will likely be known by end-May. Conservatively, we have assumed a 22% effective tax rate for 2QFY15 and 3QFY15 earnings.

Our views and earnings forecasts are unchanged. ViTrox remains in the forefront to capture the upgrade or replacement demand for 400 units of advanced X-ray inspection system, approximately RM150 million in orders per annum for next three years, which provides earnings visibility. — Maybank Investment Bank, May 25

This article first appeared in The Edge Financial Daily, on May 26, 2015.