Investment Highlights

• We maintain our HOLD recommendation on V.S. Industry (VSI) with unchanged forecasts and fair value of RM1.16/share, pegged to an FY20F PE of 14x.

• We attended VSI’s 1HFY19 briefing with the following key takeaways:
  • 1HFY19 results summary:
    • Impacted by weaker performance of overseas operations: Both VSI’s 1HFY19 revenue and PBT declined by 6% and 18% YoY respectively amid weaker sales orders and underutilization of facilities in its Indonesia and China operations.
    • Malaysian segment continues to improve:
      Revenue increased 7% YoY driven by higher sales orders from key customers while PBT rose 9% due to more production lines running optimally and amid the absence of setup costs for new assembly lines commissioned in 1HFY18.
  • Bissell production facilities in midst of being setup
    Mass production of Bissell’s 1st model of a carpet cleaner is targeted to commence in Sept 2019, with tooling and mould fabrication processes currently on-going. There will be minimal capital investment for machinery in the 160K sqft Bissell plant as the factory is readily-equipped.
    • At various stages of discussion with prospective customers: The group has received enquiries from potential customers wishing to shift their manufacturing bases out of China to VSI’s Malaysian and Indonesian operations. VSI seeks to diversify its customer base further and has its new 180K sqft factory which will be ready by mid-2019 for its potential new customers.
    • Outlook for overseas operation: VSI expects its Indonesian segment to remain profitable for FY19 as it continuously looks to secure new orders to increase its utilization rate. Meanwhile, its China operations continues to operate in a challenging environment with weakened business sentiment and suboptimal utilization of facilities expected to prevail. As such, VSI will continue its restructuring efforts in order to streamline operations and minimize losses.
• We are neutral on the outcome of the briefing and maintain our forecasts. We reiterate our HOLD call on VSI.

• Although VSI is expecting stable growth of orders from its key customers in its Malaysian operations in FY19F-FY21F, we believe that its earnings growth has been largely priced in. Key upside risk to our outlook is that VSI would secure additional orders from prospective customers in CY19.

Source: AmInvest Research - 4 Apr 2019