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Monday, February 29, 2016

ViTrox Corp - Recess is over, time to work

“Cabin crew, prepare for take-off”

Following a strong 4Q15, management expects another busy quarter backed by a solid order backlog. 3-month average book-to-bill ratio also improved to 1.4x (12-month high). Solid orders at both the MVS and ABI divisions came from a sizeable number of clients globally. We see upside to our forecasts should order momentum sustains into 2Q16. For now, our forecasts and MYR3.80 TP (13.5x CY17 EPS) are unchanged. Exciting times are ahead with stronger earnings visibility; reiterate BUY.
2015 core earnings was actually within expectations

Management guided that 4Q15 reported net profit included a MYR5.7m provision for tax (not disclosed in the results announcement) which will likely be claimed back due to its renewed pioneer status (delayed due to a necessary amendment to the official document). Stripping off the tax provision, 2015 core earnings would have hit MYR51m (+2% YoY); in line with our forecast of MYR52m.
A record high 1Q16 in the making?

New qualifications by two of the world’s top 10 EMS players recently have translated to stronger orders. As at 19 Feb, purchase orders have hit MYR32m while order backlog stands strong at MYR26m vs MYR17m a quarter ago; we expect 1Q16 revenue to hit MYR55m-60m (+c.20% QoQ, +1.5x YoY). The MVS-T division (27%/12% of FY14/15 revenue) expects to deliver 12-15 units in 1Q16 vs just 18 units in 2015. Chunky orders were also seen at the ABI division in 1Q16. Typically, 1Q has been the weakest quarter for ViTrox (1Q revenue makes up average 16% of annual revenue over the last 3 years), indicating even stronger quarters ahead.
Playing the cards right

As a leading automated vision equipment maker strategically located in Penang, ViTrox may also benefit from multi-billion FDIs into Penang and Batu Kawan by technology MNCs such as Osram and SanDisk. ViTrox’s ventures into data analytics should strengthen recurring revenue for the group (2015 service income: +66% YoY to MYR17.4m/11% of group revenue). Valuations are undemanding at 10.7x FY16 ex-cash PER. BUY.

Source: Maybank Research - 29 Feb 2016

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