PETALING JAYA: CGS International Research (CGSI Research) has downgraded Vitrox Corp Bhd
to “reduce” from “hold” previously, citing challenging operating conditions ahead.
The research house pointed out that Vitrox is trading at a forecast 2025 price-to-earnings (PE) ratio of 40.3 times, well above its eight-year historical average of 32.7 times and local peers’ 30.1 times.
“Despite expecting 36% growth in the financial year ending Dec 31, 2024 (FY25) net profit, we downgrade Vitrox from ‘hold’ to ‘reduce’, with a lower target price of RM3.15 in view of rising earnings risks due to competition and demanding valuations,” it noted.
CGSI Research highlighted that Vitrox’s third quarter ending Sept 30, 2024 (3Q24) revenue guidance by its management is between RM140mil and RM150mil, a slight improvement quarter-on-quarter due to increased orders in its machine vision systems (MVS) segment.
This growth is driven by automation spending among outsourced semiconductor assembly and test services and integrated device manufacturers.
However, Vitrox guided that visibility of orders from the automated board inspection (ABI) segment remains soft due to ongoing uncertainty from the United States-China semiconductor conflict, according to CGSI Research.
“Vitrox is ramping up its research and development (R&D) expenses to maintain its technology leadership in vision inspection over new players and plans to introduce feature-rich vision inspection models, offering both low and high-end options, to at least maintain its market share against emerging new players,” CGSI Research noted.
However, the research outfit acknowledged that this may impact its near-term margins.
To note, China remains Vitrox’s largest market, accounting for about 40% of its first half of financial year 2024 (1H24) revenue.
Given its relatively soft near-term guidance, CGSI Research cut its forecast on FY24 to FY26 net profit estimates by between 15% and 27%, incorporating lower shipment sales and average selling prices for its ABI and MVS segments.
The research outfit expects flattish net profit in FY24, followed by growth of 36% in FY25 and 22% in FY26.
In 2Q24, Vitrox’s revenue declined by 8.2% to RM137.2mil, attributed to slower global market recovery affecting ABI sales. However, robust MVS sales partially mitigated these effects.
Net profit for the quarter plunged by 25% to RM28.1mil, mainly due to ongoing R&D investments and an unfavourable foreign exchange loss. Vitrox’s 2Q24 results missed CGSI Research’s expectations as core net profit declined 10% year-on-year on lower revenues and higher depreciation expense.
The 1H24 earnings before interest, taxes, depreciation and amortisation margin was 20.6% against 26.9% in 1H23.
For 1H24, revenue decreased by 9.2% to RM256.8mil, with net profit sinking by almost 36% to RM45.33mil. CGSI Research said 1H24 core net profit was at 36% of its full-year forecast.
It identified de-rating catalysts, including a slowdown in the semiconductor industry, intensifying competition and the worsening US-China chip war. Potential upside risks include a stronger-than-expected recovery in the semiconductor industry, traction in the artificial intelligence supply chain and forays into new segments.
