In its filing to the stock exchange, the group said its Malaysia segment posted a 13.2% increase in revenue in the current quarter, mainly due to higher sales orders from key MNC customers, which offset the decline in revenue from a major US customer.
KUALA LUMPUR: Maybank Investment Bank Research is maintaining its Buy call on integrated electronics manufacturing services (EMS) provider VS Industry while retaining its target price (TP) of RM1.95.
It said on Thursday its TP of RM1.95 is pegged on unchanged 16 times CY19 PER which is 10% below the average price-to-earnings ratio (PER) target for its tech coverage.
Despite conservative targets set by management for FY19, the research house remains optimistic that VSI’s 1HFY19 financials would show double-digit earnings growth on-year, lifted by higher production volumes in Malaysia and positive cost adjustments as seen in its 4QFY18 results which lifted profit margins.
“We project a 36% core earnings growth in FY19. Beyond 1HFY19, we see further growth opportunities for VSI from its newly acquired and built plants,” it said.
Maybank Research said when VS Industry’ 180,000k sq ft plant is completed by year-end, this would bring total available production floor space to 300k sq ft, capable of fitting in 10 new full-assembly production lines for new/existing customers.
It said that amid uncertainties from the US-China trade war, VS Industry has received enquiries for its available floor space but management is taking a cautious stance in assessing the trade diversion.
“However, management is concerned about a temporary contract flow which could cause a significant underutilisation of equipment should the trade war eases. On the same note, VSI expects its China operations to remain in the red in FY19 although cost-cutting measures are already ongoing,” it pointed out.
As the biggest listed EMS player in Malaysia, Maybank believes that VS Industry is in the forefront to benefit from the potential trade diversion from China.
“At 14.2 times CY19 PER currently, valuation is relatively undemanding compared to respective segment bellwethers such as Inari (OSAT space; Inari, buy, TP RM2.58) and ViTrox (equipment space; buy, TP RM6.80) which are trading above 20 times CY19 PERs,” it said.
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