VS INDUSTRY BHD

By RHB Research Buy Target price: RM2.88

VS INDUSTRY’S near-term earnings growth will be supported by new orders secured from existing key customers, said RHB Research.

The research house said the company was in talks with both its existing and new potential customers for new contract orders, which would sustain its earnings growth momentum over the longer run.

“For FY18, the group has allocated capital expenditure of RM80mil to increase its production lines in Malaysia, which we think signifies optimism and confidence over its long term prospects,” it said in a note.

RHB Research upgraded the company to buy from neutral previously, and lifted its FY18- FY19 earnings forecasts by 15% and 23% respectively after factoring in the secured and potential new orders.

It also introduced its FY20 forecast, implying an earnings growth of 13%. Aside from the lift in earnings forecast, the research house also raised its target price to RM2.88.

It said the higher valuation was justified by the group’s stronger prospective earnings growth, backed by orders from key customers, and the potential of securing more new orders as well as its more sizeable market capitalisation of over RM3bil after the solid run-up in its share price year-to-date.

Year-on-year, the group saw FY17 revenue jump 51% to RM3.3bil on the back of new orders from its key customers, which led to a core net profit growth of 19% to RM175mil.

For the fourth quarter, revenue grew 15% quarter-on-quarter to RM983.4mil due to the gradual ramp-up of new production lines, while core net profit inched up by only 5% to RM53mil on the back of relatively lower contribution from Malaysia (higher raw material costs) and the China operations (in the midst of renewing replenishment order for water filters).