(Jan 18 RM1.27)
Not rated, indicative fair value of RM1.72: ViTrox Corp specialises in designing and developing automated vision inspection equipment and system-on-chip embedded electronics devices for the semiconductor and electronic packaging industries.
In 2009, US-based Agilent announced the closure of a subsection of the test and measurement division, exiting its automated optical inspection (AOI) and automated X-ray inspection (AXI) system business.
Obtaining the outsourcing service agreement from Agilent gave ViTrox the opportunity to obtain Agilent’s technology, R&D team, manufacturing partners and channel partners, thus acquiring an instant position as a global player. In addition, together with the R&D team, ViTrox has been able to improve the performance of the equipment and cut per unit costs.
Its key earnings driver is automated board inspection (ABI). AOI and AXI, part of the ABI segment, mainly focus on printed circuit board inspection.
This equipment is important to provide a more reliable and efficient inspection tool than the traditional ICT printed circuit board assembly inspection.
Historically, machine vision system (MVS) has been the main revenue contributor for the company.
However, going forward, this segment is likely to be the key growth segment as ViTrox’s equipment caters for: (i) a wider range of customers versus packaging players in the MVS segment; and (ii) increasing complexity and density of circuit boards.
The risks include: (i) strengthening of the ringgit against the US dollar; (ii) increasing competition; and (iii) rising raw material costs.
We forecast FY10/12 net profit to grow 1,103.4%, 40.5% and 34.9% per annum respectively, mainly driven by the: (i) stronger than expected demand for ABI and MVS; and (ii) resilient revenue stream from its electronic communication system on the back of growing need for automation equipment.
However, we expect the average sale per unit for some products — MVS-Standard, AOI and AXI — to drop 5% per year on the back of competitive pricing initiated by ViTrox in order to gain market share.
This implies that earnings before interest, tax, depreciation and amortisation margins will decline slightly, but this will be partially offset by higher utilisation rate coupled with higher-margin equipment.
We have pegged a target price-earnings ratio of eight times, which implies a 33% discount to peers’ weighted average, due to its smaller market capitalisation.
Correspondingly, we have derived an indicative fair value of RM1.72, which implies a 31.3% upside. — RHB Research Institute, Jan 18 - Written by Financial Daily
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