V.S. INDUSTRY BHD

By UOB KayHian Buy (maintained) Target price: RM1.75

VS Industry’s (VSI) fourth quarter financial year 2018 (4Q18) results are slightly above expectations, with FY18 core net profit at RM159.4mil, accounting for 107% of both UOB KayHian and consensus’ full-year forecasts.

The core net profit excludes RM8.6mil related to the disposal of Qingdao Electronics by its 43.5%-owned VS International Group’s write-down on its associate in Vietnam, and impairment loss on properties (FY17: RM16.1mil of exceptional items).

The outperformance was due to better-than-expected margins on the back of improving operating leverage from higher sales derived from its key customers.

1Q19 is expected to be stronger quarter-on-quarter on higher sales volume of boxbuilt products for its key customers due to the Black Friday event and the holiday seasons, and also in anticipation of the launch of a new product by one of its key customers in the fourth quarter of 2018.

VSI’s run-up in share price may be due to potential new investments by one of its key customers.

Prime Minister Tun Dr Mahathir Mohamad mentioned that the key customer has expressed interest in bringing new investments into Malaysia and enhancing the capability of Malaysian engineers.

He added that the government would amend “restrictive” policies so that the key customer would be more keen to invest in Malaysia.

“In our view, the investments may be related to the home appliances segment given that the key customer had already poured in massive investment to build facilities for its other segment in its home country,” said UOB KayHian.