RESEARCH houses have maintained buy calls on V.S. Industry Bhd (VSI) following a briefing from the company, noting that it has a strong track record to secure new contracts.
While the company’s first-quarter results saw weaker contributions from its China operations, losses had narrowed with VSI reporting a core profit of RM50 mil despite a 5% contraction in revenue to RM1.02 bil. A majority of the company’s revenue still comes from its resilient domestic operations.
AmInvestment Bank noted that 2020 will see VSI start production for two more Bissell models, with room at the allocated 160,000 sq ft plant for the production of four more Bissell models. Positive progress was also seen for its new printed circuit board assembly (PCBA) customer, which began production in August 2019 and will contribute RM200 mil per annum.
“Meanwhile, VSI’s new full-assembly customer contributing a revenue of RM100 mil per annum is currently at the tooling stage,” noted AmInvest.
Affin Hwang Capital sees this as the company ramping up production for both new and existing customers, adding that the company has also received more orders from coffeemaker brand Keurig as a result of trade diversion.
The research houses are also upbeat on the news that VSI’s management and business development team are currently in the US discussing potential opportunities with four prospective customers involved in the home appliances industry.
“Should new orders come to fruition, we believe it would further diversify VSI’s customer mix and enable the group to regain investors’ confidence,” said Affin Hwang.
JF Apex Securities agreed with VSI taking advantage of trade diversion activities due to the US-China trade war, forseeing tougher negotiations ahead for the two superpowers.
“We believe that VSI’s efforts to continue engaging with prospective customers, especially in the US, will finally bear fruit,” says JF Apex, adding that many multinational brand owners are relocating their manufacturing base from China to Southeast Asia, with Malaysia being one of the choice locations.
“As one of the leading Electronics Manufacturing Services (EMS) providers in Malaysia as well as in the region, VSI stands to benefit from this diversion. It is also opportune that the company has ready production facilities to take up these new businesses,” adds JF Apex.
JF Apex pegs VSI at a slightly higher target price of RM1.56 from RM1.52, in accordance with its earnings upgrade of 2.4% and 3.1% for VSI’s FY20 and FY21 earnings. Affin Hwang maintains its target price of RM1.60, with AmInvest maintaining its fair value of RM1.50 as well.
At 2.20pm, VSI shares were last done at RM1.37, up a sen, with 5.17 million shares changing hands. – Jan 10, 2020