KUALA LUMPUR: Affin Hwang Investment Bank has lowered its earnings forecasts on automated test equipment manufacturer ViTrox Corporation Bhd on foreign exchange (forex) impact and delivery delays due to policy uncertainties.
Affin Hwang slashed ViTrox's earnings for 2024 to 2026 by 6.0 to 17 per cent while keeping the "buy" call with lower target price of RM4.80 from RM5.15.
The firm, however, said the worst is over and a recovery is underway.
This follows the narrowing yearly decline and improved sequential performance over the past two quarters, coupled with the consistent improvement in ViTrox's book to bill ratio to 1.2 times in the third quarter of 2024.
"While management previously highlighted 30 per cent of its orderbook lack confirmed delivery dates due to delays caused by the US election, the group has since observed some improvement, as more customers provided confirmed delivery dates following the election's conclusion, though the progress remains modest given the uncertainty surrounding Trump's policies.
"We believe the outlook will improve, with customers likely to resume their capital expenditure (capex) plans after President Trump's inauguration on Jan 20, 2025 and roll-out of policies that will provide greater clarity," it said in a note.
Affin Hwang added that ViTrox remains ahead of peers in product innovation and strives to continue to invest in research and development (R&D) to maintain its competitive edge.
The company's key customer's market share loss in China is only at Machine Vision System-Standard (MVS-S) segment which only contributed seven per cent of its revenue in the first nine months (9M) of this year.
Additionally, it is not losing market share in its two largest segments, Automated Board Inspection (ABI) and Machine Vision System-Tray (MVS-T), which collectively account for 92 per cent of its revenue, as its products in these two segments continue to have a competitive edge in term of product innovation.
It is estimated to be two to three years ahead of peers given the sustained R&D efforts.
Affin Hwang said ViTrox continues to see steady growth in China, with revenue from the nation up 10 per cent in 9M 2024 from a year ago.
"We see ViTrox as a beneficiary of the recovery in back-end semiconductor equipment spending as we are optimistic that a broader sector recovery will take place in 2025, as well as an indirect beneficiary of the AI boom as it forms part of Nvidia's factory ecosystem value chain.
"We believe the company deserves a valuation premium given its strong track record of earnings delivery and its market-leading position, particularly in advanced optical inspection and advanced 3D X-ray inspection systems," Affin Hwang added.