VS Industry’s 4QFY20 results surpass expectations, steady recovery anticipated

KUALA LUMPUR: VS Industry Bhd’s (VS Industry) fourth quarter of financial year 2020 (4QFY20) results have surpassed expectations, with analysts now anticipating a steady recovery, barring any unforeseen circumstances.

To recap, VS Industry’s profit for the three months ended July 31, 2020 amounted to RM46.22 million, while profit a ributable to owners of the company amounted to RM54.12 million.

According to the research arm of Hong Leong Investment Bank Bhd (HLIB Research), turnaround signs for VS Industry have become visible in 4QFY20 with highest earnings before interest, tax, depreciation and amortisation (EBITDA) margin recorded (10.8 per cent) in the past three years.

“A er experiencing a decline in the last quarter, operation has bounced back with positive growth recorded,” HLIB Research said.

“We are positive on the production recovery and opine this will persist moving forward as Victory Inc (Victory) is in urgent delivery of the cordless electrostatic sprayers due to the dire demand with exponential increase in active cases of Covid19 globally.

“Barring any unforeseen circumstances, a steady recovery is anticipated, on account of active negotiations with five prospective customers that we understand are in the final stages of discussion.”

Case in point, assuming RM600 million contract secured (similar to Victory’s size) with full contribution in FY22, a conservative core margin of 5.8 per cent would li up the research arm’s FY22 earnings projection by 15 per cent and 22 sen increase to its target price.

“With the upbeat results, we raise our FY21-22 earnings forecast by 18 per cent and 11 per cent, respectively on the basis of be er margin projections. We introduce our FY23 numbers.”

HLIB Research’s core profit a er tax and minority interests for FY21F, FY22F and FY23F were thus at RM236.8 million, RM281.1 million and RM322 million, respectively.

All in, the research arm reaffirmed ‘buy’ on VS Industry with a target price of RM2.70 per share as it rolled forward its valuation to mid current year 2022 (CY22) and pegged to unchanged price earnings (PE) of 17-fold.

“We view the premium PE multiple is justifiable taking into account of VS Industry’s multiyear growth trajectory from existing customers coupled with the proven capability to secure more projects that yield higher margins in the near future.”

Meanwhile, the research arm of Public Investment Bank Bhd (PublicInvest Research) reckoned there could have been some measure of production catchup post-lockdown, which led to the stronger-than-expected quarterly numbers.

“We leave estimates unchanged at this juncture, having already accounted for relatively stronger order flows from its key customers,” PublicInvest Research said.