THE clinching of a new customer and expectations for an upward revision to sales volume are positive news for VS Industry Bhd (VSI), and a “remarkable turnaround”, said RHB Investment Bank.
“VSI sprang a positive surprise after guiding for a broad-based upward revision to sales volume from existing customers. This is on top of clinching Victory Inc as a new customer, which promises RM600 mil worth of sales orders as a start in 2021.
“We believe the positive news in the pipeline and explosive FY21 earnings growth of 128% year-on-year (yoy) should sustain a buying interest on the stock,” said RHB analyst Soong Wei Siang today.
Victory Inc is a US-based sanitary solutions provider that specialises in chemical application equipment for professionals responsible for maintaining healthy spaces with a focus on sanitisation, decontamination, pest control, odour control,and infection prevention.
Soong said demand for disinfection and sanitary solutions will remain elevated even after the Covid-19 pandemic as stricter hygiene standard operating procedures are the new normal.
Victory Inc had also promised sales orders worth RM600 mil in 2021, which could increase to RM1.2-1.4 bil in the following years, he added.
“This customer has manufacturing exposure in China and VSI is currently the first and only manufacturer outside of China.
“Victory Inc’s products sell for US$1,200 to US$2,200, hence we believe the margin for VSI will be on the higher range versus other customers’ products. The products are not among the most sophisticated VSI has ever manufactured, so we expect minor issues in the start-up and ramp-up in production. Production is scheduled to commence by early 2021.”
Soong said VSI management sees opportunities in the electronic manufacturing services (EMS) space due to the ongoing US-China trade war.
“The uncertainties over the upcoming presidential election in the US and the cost competitiveness in Malaysia have prompted more international brand owners to expedite the relocation or diversification of their manufacturing sources.
“Despite the latest win and the higher volume from existing customers, management is confident that the company has the capabilities to on-board more customers.”
He said VSI has earmarked RM100 mil in order to construct a new plant to potentially accommodate another new customer, and that the discussion is in its final stage.
RHB maintains a buy call on VSI, with a higher target price of RM2.28 from a previous RM1.90, justified by the earnings outlook and the anticipation of more positive news flow.
“We highlight that if the forecast FY21 net profit of RM207 mil materialises, it will mark the highest amount VSI has ever achieved. In addition, a quick solution to its loss-making China unit will be another catalyst,” said Soong.
At the end of the morning’s trading, VSI’s shares were last done at RM1.85, up 6 sen, with 27.8 million shares traded. – Aug 21, 2020
