KUALA LUMPUR (March 31): Analysts have raised their respective target prices (TPs) for VS Industry Bhd (VSI) after the group’s earnings for the second quarter ended Jan 31, 2021 (2QFY21) came in within their expectations.
Inter Pacific Research Sdn Bhd has upgraded the stock to ‘Trading Buy’ with a higher target price of RM3.10 (from RM3) by ascribing to an unchanged target price-earnings ratio (PER) of 19 times, to its forecast FY22 earnings per share of 16.4 sen.
In a note today, Inter Pacific Research analyst Diana Cheok said she expects strong double-digit growth in VSI’s topline and bottomline, supported by robust order visibility from key customers in the consumer electronics industry.
Meanwhile, Hong Leong Investment Bank (HLIB) Research has reiterated its ‘buy’ call on the electronics manufacturing services (EMS) provider with a revised target price of RM3.44 from RM2.92, after lifting its price-to earnings multiple from 17 times to 20 times, pegged to CY22 earnings per share (EPS).
“We view that the higher premium is justifiable given the healthy order outlook brought by the steady demand of consumer electronic products; and margin expansion from customer diversification efforts.
“As the biggest EMS player in Malaysia with a solid track record, we opine that VSI is on the trajectory to achieve new-high order value amongst the intensifying trade diversion,” said HLIB Research analyst Syifaa’ Mahsuri Ismail.
CGS-CIMB Research also raised its target prices for VS industry to RM3.12, from RM3 previously taking account for the group’s longer-term revenue growth from its newly-secured clients.
“We keep our earnings forecasts intact and maintain our ‘Add’ call on VSI with a higher TP of RM3.12, as we roll over our valuation to an updated CY22F (from FY22F) P/E of 19x (from 20x), at a c.20% premium to its 5-year mean P/E of 16x, to account for its longer-term revenue growth from its newly-secured clients, which we see as key re-rating catalysts.
“We like VSI for its targeted customer diversification strategy, as it has proven to benefit from manufacturing diversions from trade tensions,” said CGS CIMB Research analyst Syazwan Aiman Sobri.
VS Industry’s net profit soared 92.17% to RM63.79 million in 2Q compared with RM33.2 million a year earlier mainly due to higher sales orders and favourable product sales mix. Meanwhile, quarterly revenue grew 21.82% to RM999.31 million from RM820.33 million.
For the first half ended Jan 31, 2021, the EMS provider’s net profit climbed 60.54% to a record high of RM130.47 million, from RM81.27 million a year ago. Its revenue for the period rose 7.09% to RM1.99 billion, from RM1.85 billion.
“VS’s 1HFY21 revenue was in-line with our forecast, accounting for 47.7% of our estimated full-year revenue. Net profit, however, exceeded our forecast by 8.1% following better-than-expected EBITDA [earnings before interest, taxes, depreciation and amortisation] margins,” said Inter Pacific Research’s Cheok.
Moving forward, Inter Pacific adjusted its revenue targets for the group higher by 1% to 2% to account for better top line growth from China and tweaked its EBITDA margins to a low double-digit to reflect favourable product mix and improved cost efficiency.
It added, net profit forecast was also tweaked higher by 4%-12% in FY21-FY22 ending July 31.
“Meanwhile, we also foresee improved profitability from the Indonesian unit due to better margins and its China business to record a smaller net loss this year after massive restructuring previously.
“On the flipside, we foresee a potential cut in order flows from a disinfectant manufacturer as the pandemic recedes. As such, the sales were not imputed in our forecast and any orders received is earnings accretive, albeit not sizable compared to sales from VSI’s existing key clients,” added Cheok.
HLIB’s Syifaa said the research house is positive on the group’s long-term prospects, adding that it is upbeat that the VSI’s business development team is still continuing their discussions on boarding new customers.
“Although still at an early stage of discussions, these should serve as a growth catalyst for the group over the longer-term horizon,” she said.
CGS-CIMB’s Syazwan also opined that the order outlook for VSI’s key customers remains strong, with several new product models starting commercial production progressively in the coming quarters.
“As a result, it is currently aggressively expanding capacity to cater to its relatively more diversified customer base. We gather that its new facilities sitting on c.414k sq ft of land at i-Park @ Senai Airport City, Johor are on track to be completed by mid-2021, which should allow it to cater to its customer which it secured in 2020,” Syazwan said.
At the time of writing, shares of VSI had risen three sen or 1.06% to RM2.86, valuing the group at RM5.41 billion.
