Analysts positively surprised with VS Industry’s upcoming Dyson boxbuild assembly business

KUCHING: Analysts are positively surprised with VS Industry Bhd’s (VS Industry) upcoming Dyson box-build assembly business and the group’s 20 per centstake acquisition in NEP.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), to its ‘positive’ surprise, it gathered that VS Industry is already setting up a new assembly line to supply box-build assembly services for Dyson cordless vacuum cleaners; with mass production to commence by early financial year 2017 (FY17).

Kenanga Research noted that this is on top of the ongoing orders for PCBA and Battery packs.

“Note that this new line could produce up to 20,000 units per week at max ramp mode and potentially adding up to RM400 million per year to the group’s top line.

“More positively, management cited that there are chances for more orders being secured in the near term, which would require the group to set up another two lines should demand swell strongly,” the research arm said.

For now, the research arm’s earnings forecasts only accounted for the projection of an additional box-build assembly line.

On another note, Kenanga Research gathered that there were some delays on the delivery of new coffee machine in June 2016 (third model by VS Industry) to the group’s US customer due to supply components issue.

“However, this has been resolved, with the shipment spilt over to December 2016,” it said.

The research arm recalled that management previously guided a total of two million shipment to be fulfilled by June 2016.

It highlighted that moving forward, VS Industry will also be doing another new model for this US customer (announcement made on Tuesday), which might see the group’s total product shipment rising to three million a year in a blue sky scenario.

Aside from the above, Kenanga Research revealed that it was also positive on VS Industry’s latest deal whereby the group recently proposed to acquire up to 20 per cent stake of the enlarged issued and paid-up capital of a company NEP which is principally involved in assembling, wholesaling, distributing, trading of Diamond brand water filtration systems and healthcare-related products.

Kenanga Research was positive on the deal given the undemanding forward price earnings ratio (PER) valuation which is below the industry average forward PER mean, profit guarantee of RM40 million net profit (NP) for FY17 (or RM8 million after associate accounting) by NEP and high profit after tax (PAT) margin (of mid-teens as of year to date (YTD) 2016) that NEP carries, as well as new stream of manufacturing revenue for VS Industry (of RM100 million per year).

The research arm has projected the group to register FY16E/FY17E NP of RM122.9 million/RM168.8 million with key earnings assumptions being two-year revenue compound annual growth rate (CAGR) of 18 per cent.