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Malaysia: Maybank IB positive on VS Industry’s expansion plans
KUALA LUMPUR: Maybank IB Research remains positive on VS Industry Bhd
following its Tuesday briefing with a Buy rating and target price of RM3.18 based on 17.5x CY18 PER.
“VSI’s 4QFY7/17 pre-tax profit margin for the Malaysian ops contracted 4.4ppts q-o-q, mainly due to a transition of its transactional currency from USD to RM for components sold to local vendors.
“Going forward, a cost pass-through mechanism is already in place with VSI’s key clients to address the effects of currency movement, effectively reducing VSI’s USD revenue exposure to just ~30% in FY18E from 55%-60% in FY17.
“We are positive on this in light of the recent strengthening of MYR against USD.”
The research firm noted VS’s plan to build a facility by mid-CY18, which could house up to 12 additional box-build lines, in addition to the current six to eight planned for its key client.
“This, we suspect, could be for a new client. Up to RM30m will be spent on the new building, another ~RM50m for equipment and automation (but only when there are job wins). In the near term, we also do not rule out the possibility of VSI acquiring an existing facility should there be a need to scale up rapidly,” it said.
Maybank IB Research is positive on VS’s ambitious expansion plan which it says could fuel growth for the next two to three years.
“Securing another sizeable client to diversify its revenue profile could further re-rate VSI (top three clients made up 62% of FY17 revenue). It has a strong balance sheet to support its expansion plan with a net gearing of 32% as at end FY17.
“For now, we maintain our forecasts, expecting VSI to utilise up to 8/10 box-build lines in FY19/FY20 respectively, driving a 30% 3-year earnings CAGR.”
Source: http://www.thestar.com.my/business/business-news/2017/10/04/maybank-ib-positive-on-vs-industry-expansion-plans/#f6zI8vQOWibCwzMj.99