One of VS Industry
KUALA LUMPUR: Maybank Investment Bank Research expects stronger orders from VS Industry Bhd
’s existing key clients, coupled with contract wins from new brands to drive its projected 14% three-year earnings compound annual growth rate (CAGR) between FY16 and FY19.
The research house initiated coverage on electronic products maker on Tuesday with a Buy call and a target price of RM1.78 which pegs the counter at 14 times CY18 earnings per share, a 30% premium to regional and local peers.
“VSI’s established status as a vertically integrated player is a testament of its capabilities as a one-stop shop contract manufacturer,” it said in a note.
The company is currently serving several growing world-renowned consumer electronics brands including a prominent global consumer electronics brand (Customer X) and an American single-serve coffee maker, Keurig.
Despite a decent 14% earnings CAGR projection in FY16-19, the research house said it still sees further growth opportunities from further contract wins.
“We like VSI for its diverse customer base and commendable profitability track record (20 years unbroken streak).
“At 12 times CY18 price-to-earnings ratio currently, this offers a decent entry point to the stock which could potentially outperform on new wins,” the research house noted.
Maybank IB Research expects the company’s growth to be led by its largest client, with the possibility of additional outsourcing (of plastic injection & box-build assembly) from Customer X, underpinned by rapid expansion of VSI’s product range.
“With available floor space and prior experience, VSI is able to install up to four new production lines quickly to capture the surge in demand for Customer X’s end-products.
“For this, we expect VSI to see a slight margin expansion going forward,” it said.
It has imputed contract wins worth RM280mil and RM600mil in FY17 and FY18, bringing revenue contribution from Customer X to 37% and 41% respectively from 30% in FY16.
The research house added that further diversification in its customer base has landed new contacts for VSI’s China and Indonesia operations, which are projected to breakeven in FY17.
VSI’s China plant has been earmarked to manufacture air and water purifiers for the Perfect China and Diamond brands; potentially contributing about RM200mil to group revenue over FY17/18.
Its Indonesia operations have secured its first box-build assembly contract from US-based Fluidic Energy after over 10 years in operations.
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