PublicInvest Research keeps VS Industry as Outperform

One of VS Industry

KUALA LUMPUR: PublicInvest Research is keeping its Outperform call for VS Industry as it continues to like the group’s growth proposition.

The research house said on Wednesday it also retained the target price of RM2.36 based on a 16 times multiple to fully-diluted CY18 EPS,  underpinned by an anticipated three-year compounded annual growth rate of 27%.

VS Industry registered a robust 161.9% year-on-year jump in its 3QFY17 net profit to RM50.5mil, driven by growing contributions from all its operations. 

Cumulative 9MFY17 net profit of RM119.5mil was in line with expectations, making up 75.8% and 73.2% of the research house and full-year consensus estimates respectively. 

A third interim single-tier dividend of 1.5sen was declared, bringing total dividends for the financial period to-date to 3.9sen and in line to meet its forecast 5.3sen payout for the year (2.6% yield) based on its 40% dividend payout policy.  

Revenue for 3QFY17 surged to RM854.1mil (+68.2% year-on-year) for a cumulative RM2.30bil (+41.7% year-on-year) as at 9MFY17.

The growth was underpinned by expansions in its three main geographical areas -- Malaysia (+41.8% year-on-year), Indonesia (+35.6% year-on-year) and China (+42.8% year-on-year). 

“New production lines commissioned earlier this year are now running at optimal capacity, and have been receiving increasing sales orders from key customers. 

“This is just in Malaysia alone, with manufacturing-related contributions from NEP Holdings in its China operations yet to start pending regulatory approvals,” it said.  

PublicInvest Research pointed out VS Industry’s net profit of RM50.5mil (+161.6% year-on-year) for 3QFY17 was higher in line with the growth in revenue, with particularly notable growth seen in Malaysia coming as a result of new box-built orders from its key customers. 

This has in turn led to greater economies of scale, with operating and net margins also on the rise sequentially. 

Cumulative net profit for 9MY17 was only 11.1% higher year-on-year to RM119.5mil.

The factors were due to 1) an RM2.9mil impairment charge on intangible assets, 2) lower exchange gains of RM6.4mil in 9MFY17 vs RM7.1mil in 9MFY16, 3) higher start-up and plant setup costs incurred in Malaysia and China in preparation for production volume increases, with no correspondingly significant revenue contributions, and 4) higher tax bill (+88.5% year-on-year) owing to absence of export tax incentives. 
     
“Box-build assemblies for a significant customer are anticipated to surge in the coming years, alongside complementary growth in PCB and battery pack assemblies. 

“Capacity and capability-wise, VS remains able to produce up to 3x what it is currently doing now, immense potential growth coming from the near-zero base in the recent financial year. 

“China has been a surprise package this FY17, driven primarily by unexpectedly strong demand from Perfect China, to the extent that its initial 1-year RMB400m contract slated for completion in August this year is almost fulfilled. 

“Management is still in the midst of negotiating for a replenishment of orders, with no conclusion as yet though indications are positive. Throw NEP Holdings into the mix, even more exciting times beckon,” it said.