Vitrox: Earning rose

Recent Financial Results

For QE31/12/2014, Vitrox's net profit increased by 21% q-o-q or 161% y-o-y to RM14 million while revenue increased by 8% q-o-q or 49% y-o-y to RM43 million. The q-o-q increase in both revenue and profit were attributed to increase in sales recorded for  Automated Board Inspection (ABI). Sales from ABI have recoded an increase of 61%, against the immediate preceding quarter, due to increase in customers demand.


Table: Vitrox's last 8 quarterly results


Chart 1: Vitrox's last 29 quarterly results

Expiry of Pioneer Status

Going forward, Vitrox will have to wrestle with the issue of its pioneer status/tax exempt incentive for certain qualifying products granted by the Ministry of International Trade and Industry. For the company, its 5-year pioneer status will expire on 25 January 2015.

Two of its wholly-owned subsidiaries, ViTrox Technologies Sdn.Bhd. (“VTSB”) and ViE Technologies Sdn.Bhd. (“ViE”) also enjoy similar benefit. VTSB’s pioneer status will expire on 31 March 2015 while ViE’s pioneer status will expire on 31 December 2017.

If the pioneer status for Vitrox and VTSB are not extended, the net profit of the group could be affected in FY15. The impact could be softened if the group can maintain its good performance for the near future.

Valuation

Vitrox (closed at RM3.15 yesterday) is now trading at a PE of 14.9 times (based on last 4 quarters' EPS of 21.14 sen). Based on the doubling of earning last year, PEG ratio is at a low of less than 0.2 time. One can argue that Vitrox is fairly attractive. However, Vitrox is operating in a cyclical industry which is prone to erratic earning. Is it approaching its peak earning soon? We will have to wait & see.

Technical Outlook

Vitrox is continuing on its uptrend after surpassing its recent high of RM2.90-2.92. However, we can see a bearish divergence in its Stochastic indicator, which may signal a temporary top ahead.


Chart 2: Vitrox's weekly chart as at Aug 22, 2014 (Source: Tradesignum)

Conclusion

Based on improving financial performance & bullish technical outlook, Vitrox is a good stock for long term investment. However, the nature of its industry and the bearish divergence in its Stochastic indicator could be early warning that we should be on guard for a temporary top ahead.

 Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of,Vitrox.