Maybank Research recommends profit taking on ViTrox

KUALA LUMPUR: Maybank Investment Bank Research has recommended investors take profit on tech-equipment related ViTrox as its share price has soared 159% year-to-date and valuations are also above its peer equipment players in the region.

It said on Friday that despite its earnings upgrade, ViTrox is trading at 22.3 times CY18 price-to-earnings ratio (PER) for an expected two-year (FY17-19) earnings compounded annual growth rate of 20%.

“We lift FY17/18/19 net profit forecasts by 6%/8%/19% on higher volume sale across all divisions (2Q17 demand was strong); also to factor in ViTrox’s expansion into Campus 2.0 by end-2017. 

“Arguably a champion in the inspection equipment space, we believe that ViTrox deserves to trade at 19.5 times FY18 PER (from 18 times), a 20% premium over regional peers. 

“Despite a higher TP of RM4.20 (+17%), we believe that its near-term earnings growth potential has been fully priced in; downgrade to Sell,” it said.

Maybank Research said ViTrox’s 2Q17 core net profit of RM19mil (-3% on-quarter, +28% on-year) took 1H17 core net profit to RM38mil (+54% on-year) and met 49% of its and consensus’ full year forecasts.

In 2Q17, despite solid revenue growth (+12% on-quarter, +37% on-year) led by the MVS-S division (+63% on-quarter), core earnings retraced 3% on-quarter due to higher opex incurred for performance bonus allocation.

The 2Q17 headline net profit included a (i) RM1.5mil insurance claim for damaged goods and (ii) RM200,000 net reversal of slow moving inventories.  

“We believe that ViTrox would likely report another quarter of sequential revenue growth in 3Q17 before slowing down in 4Q17 on seasonality, as evident by the tapering of ViTrox’ recent book-to-bill ratio. 

“Nonetheless, July’s book-to-bill ratio remains healthy (more than one time) at 1.26 times. Beyond 2017, strong demand by its customer may not repeat, thus earnings growth could be slower in 2018 despite (i) a capacity expansion into Campus 2.0 and (ii) the replacement cycle of the AXI equipment,”  it  said.