We think the stock’s recent sell down due to risk-off sentiments on exporters has been overdone.
VS Industry has clear earnings drivers as it sees growing orders from
existing/new customers. We opine its recent 12.1% stake acquisition in
Seeing Machines could also open up potential business opportunities
should future strategic collaborations occur. Maintain BUY, but lower TP
to MYR1.68 (from MYR1.81, 33% upside) as we take into account a slight
delay in the production start of a new prototype coffee brewer. An
interim 0.8 sen dividend was declared, bringing YTD total dividend to
2.3 sen (1HFY15: 1.2 sen).
Diversifying its earnings base. We understand that
management is currently in talks with several new and existing customers
to secure more manufacturing orders that would help propel double-digit
earnings growth in FY17F (Jul). VS Industry’s ability to take on more
manufacturing jobs would be backed by its available spare capacity at
its existing Johor plants. The group recently secured a contract to
produce a home sports equipment product thatcould help grow earnings in
the coming years.
Acquired 12.1% in Seeing Machines Ltd. In our view,
we think the acquisition could yield potentially rewarding
opportunities. While VS Industry is more well-known as a consumer
appliances original equipment manufacturer (OEM), it also manufactures
automotive component parts for a leading multinational (MNC) automotive
supplier. This would well-position the groupfor potential collaborative
opportunities with Seeing Machines.
Maintain BUY. We trim our FY16F-18F earnings by
3-12% to account for the slight delay in commencement of the new coffee
brewer model. We favour the group for its attractive growth proposition
going forward, which would be driven by an increasingly diversified
earnings base as it sees strong orders from new/existing customers.
Maintain BUY with a SOP-derived MYR1.68 TP. TheTP is supported by our
corroborative DCF valuation.
Source: RHB Research - 29 Mar 2016
VS (6963) - VS Industry - Buzzworthy Prospects
http://klse.i3investor.com/blogs/rhb/93872.jsp
