However, the research house said on Friday ViTrox’ near-term positive earnings prospects has been fully priced in.
“Our earnings forecasts are unchanged pending a briefing today; our 2018E revenue appears aggressive but 9M18 reported margins were much better than expected.
“Its strong share price performance has led to its share price surpassing our unchanged TP of RM6.80 (pegged on 22 times CY19 PER which is +one standard deviation). With a 9% downside potential to our TP, ViTrox is now a hold,” it said.
Maybank Research said ViTrox’s 3Q18 core earnings of RM28mil (-1% on-quarter, +27% on-year) took 9M18 core net profit to RM77mil (+27% year-on-year).
Despite flat sequential results in 3Q18, ViTrox continues to record year-on-year growth for the 13th consecutive quarter since 3Q15.
In 3Q18, its strong year-on-year earnings growth of 27% was driven by a 21% year-on-year jump in revenue and 2.2ppts expansion in operating margin; year-on-year sales growth was seen in all divisions led by MVS-S (+38% year-on-year from higher sales of wafer inspection equipment) and AOI (+31% year-on-year).
“We expect the year-on-year growth to continue in 4Q18 for ViTrox to close 2018 on a strong note; floor space constraint has eased after ViTrox’s move into Campus 2.0 (three times bigger than Campus 1.0) in July 2018.
“ViTrox has yet to fully utilise its new Campus 2.0 for now (only three-fifths of manufacturing floor has been used thus far) and we expect earnings growth to persist as it benefits from rising demand for automation equipment (book-to-bill sustaining above one-time level), especially in the (i) telecommunication infrastructure (5G deployment from 2019 onwards) and (ii) automotive (autonomous driving) industries.
“Slower growth expectations for the upcoming year by major tech MNCs have resulted in earnings adjustments and softer sentiment for tech stocks.
“With peer equipment companies now trading at 14 times CY19 locally and regionally (vs. 24 times CY19 PER for ViTrox currently), this would also cap the upside for ViTrox despite superior earnings growth thus far,” said Maybank Research.
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