KUALA LUMPUR: RHB research maintained its buy call on VS Industry Bhd
with a higher target price of RM1.28 from RM1.12 previously.
In a note, the research house said the group's 9MFY19 results beat expectations as the former may have overestimated the impact from lower orders by a key customer.
"We continue to like the company for its stellar FY20F earnings growth, spurred by the commencement of new production lines for Bissell.
"We also look forward to further contract wins – with opportunities arising from the US-China trade war. Despite the exciting growth prospects, its valuation is undemanding," it said.
RHB forecasts net profit growth of 31.9% y-o-y in FY20 on the new production for Bissell, which is scheduled to begin in September.
The research house also expects more work orders from the US-China trade war diversion.
"VS Industry stands a good chance in capitalising contracts, given its expertise and track record – having served several globally renowned customers.
"Note that we have only conservatively assumed new orderbook wins of MYR200m each for FY20F and FY21F," RHB said.
VS Industry recently announced a 9MFY19 core net profit of RM114.5mil, which was 2% higher year-on-year.
The result came to 85% and 87% of RHB's and consensus estimates.
Revenue for the period fell 4.2% y-o-y to RM2.9bil, mainly due to lower sakes in China on the back of a challenging business environment and lacklustre demand.
"That said, the weakness was partly mitigated by the strong performance from its Malaysia division.
"Similarly, its 9MFY19 PBT contribution from Malaysia surged 17.3% YoY to MYR164.2m, as margins normalised from 9MFY18 levels, when it was affected by start-up costs and operational inefficiency related to the set-up of new production lines," it said.
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