KUALA LUMPUR: RHB research has raised its FY20F net profit forecast on VS Industry Bhd
by 13% after factoring in the signing of its three-year master supply agreement with Bissell.
The research house concomitantly trimmed FY19 earnings by 4% as it removed the orderbook win from this year's tally given that it would not be able to contribute to this financial year.
It maintained its buy call and raised its target price to RM1.28 from RM1.08 based on an unchanged 12x FY20F P/E.
VS Industry said its agreement with Bissell is to manufacture homecare products on a box-build assembly basis.
The company will be the first Southeast Asian contract manufacturer engaged by Bissell with production expected to begin in August.
In addition to about RM35mil invested in the plant to house to production for Bissell, VS does not expect to incur more than RM5mil in additional capex.
RHB noted that the ongoing US-China trade war may be opening pockets of opportunities for VS.
It said the company is in negotiations with several potential multinational corporation customers looking to diversify of shift their production facilities from China.
"Management believes the ASEAN member states, including Malaysia, Vietnam, and Thailand, will be able to benefit from the contract outflow wave, given their current technology levels,
availability of supply chain, and cost competitiveness.
"We believe VS stands a good chance of being one of the beneficiaries, given its strong expertise and track record, having already served several globally-renowned customers," it said.
RHB added that having secured a high-profile customer like Bissell will enhance VS's international reputation.
With regards to its existing key customer, the order volume for beauty care products has grown, which RHB says implied that the relationship is in order.
"Consequently, we believe the risks of any further loss in orders from this key customer will be mitigated," it said.
"Our buy call is also premised on our assumption of a low risk in further loss of existing orders. All this may well propel the net profit growth to an exciting 41% in FY20F."
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