VITROX – Fundamental Analysis (28 Feb 2015)

VITROX Analysis:-

Excel – http://1drv.ms/1BMH0KZ

Notes – http://tinyurl.com/q9865xx

My View:-

  • Valuation:
    • Absolute EY%:
      • Trailing:
        • FY14 (EPS: 0.211) – Fair value 2.33 (Fair Value Uncertainty: EXTREME)
        • R4Q (EPS: 0.211) – Fair value 2.33 (Fair Value Uncertainty: EXTREME)
      • Forward:
        • FY15 (EPS: 0.239) – Fair value 2.64 (Fair Value Uncertainty: VERY HIGH)
        • FY16 (EPS: 0.269) – Fair value 2.97 (Fair Value Uncertainty: VERY HIGH)
      • EPS applied to reach the current stock price (3.41): 0.309
  • Key highlights from FY14 results briefing:
    • 3-month average book-to-bill ratio recovered to 1.05x in Jan 2015 from 0.84x in Dec 2014 on higher orders at ABI division.
    • Total order backlog stands at MYR18m as at mid-Feb 2015 and as such, 1Q15 revenue is expected to hit MYR33m-37m (-13%- 22% QoQ, +45%-62% YoY).
    • In FY15, management aims to hit MYR208m in terms of revenue (assuming forex of MYR3.30/USD1) with three key strategies in place:
      • Grow customer base by 20% in key markets (i.e. China, Taiwan and US),
      • Launch new low cost products (i.e. low cost AOI, mini AXI) to cater to the mass markets
      • Improve lead time and inventory management by 30%.
    • Operating margins to sustain between at 28%-30%, having considered
      • Positive exposure to the strengthening USD
      • Higher A&P expenses to capture a bigger market share.
  • I recognize that my valuation is not as compelling as what suggested by Maybank and Hong Leong analysts. To reach target price suggested by them, they assumed that EY% of VITROX can drop to around 5%. Looking at historical EY% band, the average of low EY% is 8.5%, and in 2011, VITROX’s EY% was at 5% level for few months.
  • Of course, we can always argue that "past performance is not an indicator of future results".
  • In my opinion, the recent price performance of VITROX already factored in the future potential earnings.
  • I was shareholder of VITROX where I sold off all VITROX at 2.7++ in Nov 2014. My original plan was to pick up VITROX again when VITROX having correction in December. Due to big discounts in O&G counters, I changed my plan accordingly.
  • If VITROX encounters correction in future, I may buy VITROX.

Latest Financial – Q4 2014 Financial Report (25 Feb 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1884325

At the time of writing, I  did not own shares of VITROX.

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