ViTrox Corporation Bhd
(Dec 10, RM2.35)
Maintain ‘buy’ with an unchanged target price of RM3.17. ViTrox Corp entered into a sale and purchase agreement with Penang Development Corporation for the acquisition of a land for a total consideration of RM34.2 million.
The property is situated in Daerah Seberang Perai Selatan, part of Batu Kawan Industrial Park, with an area of 22.2 acres (8.98ha). The asset is subject to 60-year state lease and shall be used only for research, design & development, manufacturing of advance automated machine vision system (MVS) & equipment, intelligent robotic vision system & modules and electronics embedded system for semiconductor, automotive, electronics, medical and healthcare industries.
Price tag was arrived on a “willing buyer willing seller” basis taking into consideration the prime area and size of the land allocated. The acquisition will be financed entirely by cash via internally generated funds and borrowings. The transaction is expected to be completed within nine months from the date of agreement. With 80% utilisation rate coupled with anticipation of strong business growth, ViTrox plans to carry out a three-year expansion plan scheduled to complete by 2023.
No concern as it has RM51.9 million of cash and strong balance sheet of 2.8% gearing as of third quarter 2014. Assuming it will finance half of this deal by debt, gearing would only rise to 13.2%. Land for expansion in Bayan Lepas is scarce and this land is strategically located close to its existing factory via the Penang Second Bridge.
The transaction value of RM1.54 million per acre is justifiably on par as Inari Amertron’s deal in August 2014. This land will be the platform for its Campus 2.0 which will start construction of phase 1 in the middle of 2015. With expansion, ViTrox envisions to generate revenue of RM896 million and employ 1,000 highly skilled workers by 2020.
The risks are foreign exchange, downturn in semiconductor demand and equipment spending, patent infringement and technology imitation. — Hong Leong Investment Bank, Dec 10
This article first appeared in The Edge Financial Daily, on December 11, 2014.