KUALA LUMPUR (Oct 27): AmInvestment Bank Research has upgraded ViTrox Corp (ViTrox) from "hold" to "buy," maintaining a stable fair value of RM8.40, based on a higher price-to-earnings ratio (PE) of 41x (from 36x), +1 standard deviation above the five-year mean of 32x on a revised FY2024F earnings per share.

Despite weaker reported earnings from the Penang-based automated test equipment maker, the research firm on Friday expressed confidence in the group's well-diversified revenue base and its exposure to high-growth industries, including computing, telecommunications and automotive segments.

The research firm further highlighted ViTrox's geographical diversity, which it believes will play a pivotal role in attracting new customers due to trade diversion resulting from the US-China chip war, particularly in Mexico and the Asean region.

Therefore, the research firm anticipates a gradual recovery and stronger demand in the Automated Board Inspection (ABI) and Machine Vision System (MVS) segments for 1QFY2024 compared to 2HFY2023.

According to the research firm, the decision to upgrade the stock recommendation is largely attributed to the rise in PE, which has increased from 36x to 41x. This increase is based on expectations of a continued gradual recovery in the semiconductor industry in FY2024.

However, the research house lowered its earnings forecast for FY2023 to FY2025 by 12% annually, assuming more conservative sales estimates, following the group's disappointing nine-month results in FY2023. ViTrox's nine-month core net profit of RM108 million accounted for only 64% of both the research firm's and consensus projections for FY2023.

In 3QFY2023, ViTrox Bhd's net profit fell by 34.6% to RM33.25 million, compared to RM50.84 million in the same quarter the previous year, due to softer customer demand and an unfavourable product mix. Quarterly revenue also declined by 19.2% to RM149.97 million, from RM185.58 million in 3QFY2022, primarily due to weaker demand from ABI.

For the nine-month period ending on Sept 30, 2023 (9MFY2023), the group's revenue declined by 23%, mainly attributed to lower demand from the MVS and ABI segments, as a result of the global economic slowdown and a slower recovery in the semiconductor industry. 9MFY2023 core net profit decreased by 33% year-on-year, in line with lower revenue, and the Ebitda margin declined by 200 basis points to 28%.

On a quarterly basis, ViTrox's revenue in 3QFY23 remained steady, while core net profit increased by 21%, a change the research firm believes is likely due to a more favourable product mix.

At lunch break, shares in ViTrox fell seven sen or 0.97% to RM7.13, giving it a market capitalisation of RM6.74 billion.