PublicInvest Research positive on VSI’s rights share subscription

PETALING JAYA: PublicInvest Research is positive on VS Industry Bhd’s (VSI) plans to take up 43.5% of the rights shares to be issued by its Hong Kong-listed subsidiary V.S. International Group Limited (VSIG).

“We are positive on this development, with the group also having the opportunity to potentially increase its shareholding in the China-based operations, which are set to record stronger growth numbers ahead,” it said in a report last Friday.

It remained affirmed of VSI’s prospects and maintained its “outperform” call on the company, with an unchanged target price of RM2.36.

Last week, VSIG announced a rights issue on a one-for-four basis to raise between HK$105.8 million (RM58.1 million) and HK$114.5 million (RM62.8 million) for expansion in China operations.

VSI’s 43.5% stake in the company will see it forking out about RM25.2 million to subscribe for its entitled portion based on the subscription price of HK$0.23 (12.6 sen) per rights share.

“This will be of no issue given its huge RM301.2 million cash pile as at April 30, 2017, though it has indicated that it will be financed entirely via borrowings. VSIG is reportedly in discussions to secure multiple large contracts from new customers, hence this exercise in preparation for the potential likelihood,” said PublicInvest Research.

Besides VSI’s full subscription for its entitled portion, other key shareholders in VSIG namely Datuk Beh Kim Ling, Datin Gan Chu Cheng and Datuk Gan Sem Yam who collectively own 9.7% in VSIG have also undertaken to subscribe for their respective portions.

From the proceeds, HK$35 million will be used to repay short-term borrowings taken previously to fund construction of new warehouses and for working capital, HK$9 million will be used for the purchase of a new dual-lane Surface Mount Technology assembly line, HK$12 million to purchase new high-tonnage injection machines, HK$23 million to enhance automation and the balance for working capital.

VSI’s share price rose 4 sen or 1.95% to close at RM2.09 last Friday with a total of 7.44 million shares traded, giving it a market capitalisation of RM2.47 billion.