ViTrox Corp has achieved significant milestones amid challenging industry dynamics, culminating in a commendable expansion of its educational initiatives with the announcement of the RM46 million VIT research and training facility. Scheduled for completion by January 2026, the company aims to double its annual student intake capacity from 200 to 450, addressing critical talent shortages in the semiconductor sector.
Despite these advancements, it faces a cautious outlook as highlighted by Maybank Investment Bank's (Maybank) recent downgrade to SELL and a lowered target price (TP) of RM3.40, reflecting a 14% downside from previous levels. This adjustment comes amidst persistent industry headwinds, prompting Maybank to revise down earnings forecasts by 20% for Fiscal Year 2024 to End 2026 (FY24-26E) despite an anticipated sequential earnings improvement in 2Q24E driven by order backlogs.
The anticipated improvement in VITRO's 2Q24E earnings is expected primarily from enhanced delivery efficiencies within its MVS-T/S segments, with turnover forecasted to rise by 65% and 60% Quarter-over-Quarter (QoQ) respectively. However, challenges loom ahead beyond the second quarter, including capacity constraints in material sourcing, extended lead-times, and a slower-than-expected recovery in key end-markets such as automotive, industrials, and telecommunications.
Maybank's analysis underscores the evolving dynamics in the Chinese ATE market, where VITRO faces increased competition from domestically subsidised players striving for technological self-sufficiency. This competitive landscape poses risks of market share erosion and margin pressures, necessitating intensified investments in R&D and marketing to defend VITRO's position.
While VITRO continues to innovate and expand its educational footprint with VIT, investors are advised to approach cautiously in light of Maybank's revised rating. Despite VITRO's robust management and diversified exposure to high-growth sectors like 5G, electric vehicles (EVs), and artificial intelligence (AI), the current valuation at 46x 12-month forward price-to-earnings ratio (PER) suggests a potentially limited upside amid challenging industry conditions.