VS Industry's long-term prospects impressive: Analysts

PETALING JAYA: Analysts are positive on VS Industry Bhd’s (VSI) long-term prospects, to be driven by the group’s potential of securing contracts from various new customers that will expand earnings growth.
“We came away from VSI’s company visit at Johor feeling upbeat due to the company’s impressive prospects in FY18 and FY19,” AmInvestment Bank’s analyst Lavis Chong said in a report yesterday.
It reiterated its “buy” recommendation on VSI with a higher fair value of RM2.85 per share from RM2.30 previously after raising its net profit forecasts for FY18/FY19 by 9-19%, and rolling forward earnings base to CY18. The group’s share price was up seven sen to close at RM2.49 with some 7.5 million shares changing hands. It has a market capitalisation of RM3.1 billion.
Chong said the electronics manufacturing service group installed additional lines in the middle of July and more lines are coming on stream in October-November.
VSI is working on procuring new jobs for an American lifestyle product, and a Swiss hygiene system for financial year 2019 (FY19). Together, the contracts could be worth more than 30% of VSI’s FY19 revenue. On another positive note, he said the management hinted that the acquisition of NEP Holdings by Ozner Water International Holding may not materialise.
Chong said this is because there was a clause in VSI’s initial purchase of NEP that mandates the future buyer to allow VSI to tag along an acquisition deal, if any. Management believes the acquirer may have lost interest due to this clause.
In addition, he said, the research house favours the group because of its association with customers, which enjoys robust growth prospects due to its product innovation; its positioning as a home-grown world-class electronic manufacturing services player; and its strong profit growth in FY17-FY19 underpinned by capacity expansion.
In a separate note, PublicInvest Research said it is lifting the group’s FY18 and FY19 earnings by 4.6% and 8.5% respectively to include anticipated new production previously unaccounted for.
“Our ‘outperform’ call is affirmed, with target price lifted to RM2.83 based on a raised 18 times, from previously 16 times multiple to a revised CY18 earnings-per-share. Three-year compound annual growth rate growth is anticipated at 33%, deeming the higher multiple justifiable in our view,” it added.