Stock Name: VITROX
Company Name: VITROX CORPORATION BHD
Research House: KENANGA
Vitrox Corp Bhd
(Sept 6, RM1.22)
Maintain buy at RM1.28 with target price of RM1.72: We attended Vitrox's 1HFY2010 briefing and came away buoyed by the positive guidance and management's conviction of the group's prospects.
While the stock has appreciated some 70% since our upgrade in May 2010, we believe the market could still be underestimating the group's potential, ignoring its high intellectual content as reflected by strong margins and ability to take market share.
After achieving RM14.3 million in 1HFY2010, the better market response to its products and higher margins from a combination of scale and improved efficiencies prompted management to raise its FY2010 guidance by 74% from its original forecast. The revised FY2010 projection is 16% higher than our forecast while unchanged FY2011 guidance of RM38.1 million is also 16% higher than our RM32.9 million projected.
Despite the positive outlook, we maintain our 'buy' call pending more evidence of execution and prefer to remain conservative amidst the growing economic uncertainties in the medium term. High intellectual content, proven technologies coupled with newfound sales channels should work positively for the group in the medium to longer term.
New products and sales channels as a result of Agilent Technologies' withdrawal from the Automated Optical Inspection (AOI) market have created opportunities for the group. The combination of an economic recovery, launch of well-received new products, AOI and Advance XRay Inspection (AXI), and a successful beachhead into new markets via channel partners enabled Vitrox to improve sales five-fold for the first six months of 2010.
Diversification from sales from the Automated Board Inspection (ABI) division, consisting of AOI and AXI machines, now accounts for 41% of sales in 1HFY2010 from 18% previously, helping reduce a reliance on the Machine Vision System (MVS).
However, the outlook for MVS remains robust with order visibility up to October. As at August, some 1,271 units have been delivered year-to-date, averaging 159 units per month which is in line with our forecast of 2,000 units for FY2010.
Vitrox has also allocated capex of RM20 million for its new innovation centre. The centre, spanning 120,000 sq ft had its ground breaking ceremony in August and is slated for completion in 2HFY2011. It has also budgeted RM25 million for research and development in 2010-2011, aided by a RM7.1 million grant from the Multimedia Development Corp (MDeC). ' Kenanga IB Research, Sept 6
This article appeared in The Edge Financial Daily, September 7 2010.
Company Name: VITROX CORPORATION BHD
Research House: KENANGA
Vitrox Corp Bhd
(Sept 6, RM1.22)
Maintain buy at RM1.28 with target price of RM1.72: We attended Vitrox's 1HFY2010 briefing and came away buoyed by the positive guidance and management's conviction of the group's prospects.
While the stock has appreciated some 70% since our upgrade in May 2010, we believe the market could still be underestimating the group's potential, ignoring its high intellectual content as reflected by strong margins and ability to take market share.
After achieving RM14.3 million in 1HFY2010, the better market response to its products and higher margins from a combination of scale and improved efficiencies prompted management to raise its FY2010 guidance by 74% from its original forecast. The revised FY2010 projection is 16% higher than our forecast while unchanged FY2011 guidance of RM38.1 million is also 16% higher than our RM32.9 million projected.
Despite the positive outlook, we maintain our 'buy' call pending more evidence of execution and prefer to remain conservative amidst the growing economic uncertainties in the medium term. High intellectual content, proven technologies coupled with newfound sales channels should work positively for the group in the medium to longer term.
New products and sales channels as a result of Agilent Technologies' withdrawal from the Automated Optical Inspection (AOI) market have created opportunities for the group. The combination of an economic recovery, launch of well-received new products, AOI and Advance XRay Inspection (AXI), and a successful beachhead into new markets via channel partners enabled Vitrox to improve sales five-fold for the first six months of 2010.
Diversification from sales from the Automated Board Inspection (ABI) division, consisting of AOI and AXI machines, now accounts for 41% of sales in 1HFY2010 from 18% previously, helping reduce a reliance on the Machine Vision System (MVS).
However, the outlook for MVS remains robust with order visibility up to October. As at August, some 1,271 units have been delivered year-to-date, averaging 159 units per month which is in line with our forecast of 2,000 units for FY2010.
Vitrox has also allocated capex of RM20 million for its new innovation centre. The centre, spanning 120,000 sq ft had its ground breaking ceremony in August and is slated for completion in 2HFY2011. It has also budgeted RM25 million for research and development in 2010-2011, aided by a RM7.1 million grant from the Multimedia Development Corp (MDeC). ' Kenanga IB Research, Sept 6
This article appeared in The Edge Financial Daily, September 7 2010.
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