Investment Highlights

• We downgrade our recommendation on V.S. Industry (VSI) from BUY to HOLD with an unchanged fair value of RM1.04/share, pegged to a CY19F PE of 14x, given that the share price has recently risen.

• VSI has entered into a master supply agreement with a new customer, Bissell International Trading Company BV (BITCBV), to manufacture certain homecare products under the BISSELL® brand on a box-build basis.

• BISSELL® is one of the top-selling homecare small appliances brand in the USA, offering an array of cleaning products including vacuums, sweepers, carpet-cleaning machines, steam and hard floor cleaners, cleaning formulas, as well as pet grooming and pet clean-up products.

• The duration of the agreement is 3 years starting 27 Feb 2019 and will be automatically be extended in 1-year increment after the initial term. The agreement is not expected to impact earnings for FY19F. However, positive contributions towards VSI’s earnings are expected to kick in FY20F onwards.

• No contract volumes or amounts were detailed, however BITCBV will provide VSI with a monthly rolling forecast of volume estimates of products for the following 6-month period, and the actual contract sum is dependent on purchase orders placed.

• Of VSI’s new facilities, the group may choose to house the assembly lines to manufacture Bissell products in its new factory which has 180K sq ft production space, as management had hinted at dedicating a plant for its new customer in its previous briefing.

• We are positive on this development for VSI but downgrade our recommendation to HOLD, pending further details on the agreement from VSI management in a briefing next week.

Source: AmInvest Research - 4 Mar 2019