Frankly Speaking: Profit guidance would be much appreciated

This article first appeared in The Edge Malaysia Weekly, on October 28, 2019 - November 03, 2019.
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Last Thursday, Penang-based automated test equipment (ATE) manufacturer ViTrox Corp Bhd announced weaker-than-expected quarterly results. Its net profit halved to RM13.86 million for the third quarter ended Sept 30, 2019 (3QFY2019) from RM28.02 million a year ago. This brings ViTrox’s cumulative nine-month (9MFY19) net profit to RM61.86 million, an 18.6% year-on-year drop.

The group attributed the lower profit to declining sales volume, its product mix during the quarter, as well as its continuous investment in research and development activities.

As ViTrox’s earnings missed market forecasts, its share price tumbled 6% to close at RM7.59 last Friday. About RM230 million in market value was wiped out in a single day, taking its market capitalisation to RM3.57 billion.

What is perplexing is that before its poor results were released, ViTrox shares had actually gained about 23% over the last two months — from RM6.75 on Aug 26 to its all-time high of RM8.29 on Oct 21.

Investors who bought ViTrox at its peak, presumably expecting the company to continue to deliver stronger results, must be puzzled by this adverse turn of fortune.

At least three research analysts — from Hong Leong Investment Bank, KAF-Seagroatt & Campbell Securities and UOB KayHian — downgraded the stock last Friday.

But all of this is too late for the investors who bought the shares at peak levels.

If the analysts are right, ViTrox’s share price will drop by 8.4% to a consensus target price of RM6.95, which was, ironically, its price level prior to the strong rally.

ViTrox has been a market darling of Bursa Malaysia over the last couple of years given its strong earnings performance.

Being a well-covered stock, ViTrox should perhaps have provide a profit guidance to investors rather than give the market such a big negative surprise.

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