CGSI Research said it expects the strong momentum to continue into the fourth quarter.
PETALING JAYA: Analysts are expecting better operational leverage and a lower effective tax rate to boost Vitrox Corp Bhd
’s net profit.
In a report, CGS International Research (CGSI Research) said the machine vision solution provider’s third quarter results would have been stronger if not for the higher tax provisioning following the expiry of pioneer-status tax incentives for its subsidiary Vitrox Technologies Sdn Bhd in June.
The group posted a core net profit of RM34.7mil for the third quarter on the back of record quarterly turnover totalling RM228.6mil while cumulatively, its nine-month core earnings of RM85.2mil came in at 72% and 70% of CGSI Research and Bloomberg’s consensus full-year forecasts, respectively.
“However, we expect a reversal in provisions as soon as the fourth quarter, as the company alluded to the Malaysian Investment Development Authority recently greenlighting an extension (in principle) for the incentives for five additional years,” the research house said.
It added the group’s record quarterly turnover was primarily driven by broad-based year-on-year growth across key segments.
In particular, its outsourced semiconductor assembly and test, and integrated device manufacturer-focused segment delivery was robust with a record of 52 units being shipped out during the quarter.
CGSI Research said it expects the strong momentum to continue into the fourth quarter on resilient driven demand from China, South-East Asia, Taiwan, and China.
“We also expect the electronics manufacturing services-centric automated board inspection segment to deliver its fourth consecutive quarter of growth in fourth quarter owing to accelerating order momentum primarily from China and Mexico, with both countries set to account for roughly 50% of unit sale volumes by the first half of next year.
Lead times, however, remain short and could pose execution risks should material shortages arise,” the research house noted.
CGSI Research said it was maintaining its earnings per share forecast for ViTrox for this year, but was raising it for next year and 2027 by 17% and 14%, respectively.
It also revised its price-earnings ratio based target price to RM4.27, which is pegged to 45.6 times next year’s price-earnings, which is plus one standard deviation from the five-year blended forward mean.
“Although we believe the plus one standard deviation premium is justified given ViTrox’s strong market leadership in machine vision systems, growing artificial intelligence exposure, and robust three years compound annual growth rate of 27.4% for earnings per share, we still find it a challenge to justify current valuations, with the stock trading at a stretched 49.6 times next year’s price-earnings,” the research house said, adding that is why its “reduce” call on the stock is being maintained.
“Upside includes faster-than-expected demand recovery and exemptions from potential US semiconductor tariffs, while derating catalysts for the group are a weaker US dollar, potential semiconductor tariffs, and order execution risks from shorter lead times.”
