HLIB downgrades ViTrox to 'Sell' on tax burden, valuation concerns
The firm cautioned that the expiry of ViTrox's pioneer tax incentive could materially erode net profits going forward, highlighting it as a key de-rating catalyst.
"The higher taxation was a negative surprise, following the expiry of ViTrox's pioneer status tax incentive on June 16, 2025, which limited the core profit after tax growth to 40 per cent, settling at RM37 million," it said in a note.
HLIB Research downgraded its call to "Sell" from "Hold" previously with an unchanged target price of RM2.65 based on price-to-earnings (PE) ratio of 34 times based on projected earnings for the financial year 2026 (FY26).
ViTrox's book-to-bill ratio normalised to 1.1 times from 1.3 times in the first quarter, reflecting the tapering of frontloaded orders ahead of US tariff changes.
All segments recorded growth, driven by a 16 per cent expansion in automated board inspection (ABI) and a robust 59 per cent surge in machine vision system and test (MVST).
Meanwhile, earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins improved to 20 per cent from 17.5 per cent.
Although the key segments posted strong growth and expanded Ebitda, foreign exchange losses and demand risks from tariff uncertainties continue to pose headwinds.
"ViTrox maintains a cautious stance to capture anticipated demand recovery.
"Ongoing, disciplined research and development investment will help the company stay technologically relevant.
"However, foreign exchange volatility, higher reciprocal tariffs from the US and component shortages could weigh on its near-term margins," HLIB Research added,
Despite a 40 per cent share price rally since April, HLIB Research argues that ViTrox's current valuation of price-to-earnings (PE) ratio of 48.5 times based on projected earnings for FY26 is excessive.
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