KUALA LUMPUR: Buying opportunities have emerged in VS Industry Bhd
(VSI) following the recent selldown despite a deterioration in its short-term prospects, says PublicInvest research.
"All-in, we believe VSI’s fundamentals remain intact and recommend a buy on weakness for its shares currently trading at 11x forward PE, way below its 2-year historical average forward PE of 19x," PublicInvest said in a Wednesday research note.
It maintained a "buy" recommendation with unchanged forecasts and a fair value of RM1.04 a share pegged to a CY19 price-earnings of 14x.
According to the research house, VSI's management said in an analyst briefing that it has received enquiries from MNCs looking to shift their manufacturing bases away from China to Southeast China amid the US-China trade war.
"The group is prepared to take on new customers and/or orders given its ready capacity at its new facilities with a combined production space of 300K sq ft i.e. its acquired 120K sq ft factory and 180K sq ft factory.
"We have not factored in any contribution of the prospective customers in our earnings forecasts."
However, VSI guided that it will take 10 to 12 months before orders from potential customers contribute to its revenue, although it might be faster in the case of transferring customers' models and orders already being manufacturing in other countries.
According to the research house, VSI is working to secure new customers for its Malaysia segment and is in discussion with more than five prospective MNC customers to full up excess capacity at its new facilities.
The Indonesia segment is also expected to remain profitable for FY19 despite making losses in 1QFY18 due to weaker orders and the weakening Indonesian rupiaj versus the US dollar.
Meanwhile, the group is undergoing cost rationalisation to streamline its China operations in light of the weak outlook amid the US-China trade war, higher operating costs and intense competition.
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