Investment Highlights

• We maintain BUY on V.S. Industry (VSI) with a higher fair value of RM2.75/share (previously RM2.60/share), pegged to an unchanged FY22F PE of 18x after raising our FY22FFY23F forecasts by 5-11% to account for its new customer, Customer Y’s revenue contribution.
• We joined a conference call held by management and came away with the following key highlights:
  • Secured new factory: The group announced that it has entered into a Sale and Purchase and Construction Agreement with Ipark Development Sdn. Bhd. to acquire six pieces of land with industrial buildings with a total land area of 413.7K sqft for a total consideration of RM98.8mil. The move will boost VSI’s built area by 25% to ~50 acres.
  •  …And new customer Y: VSI also announced that it has secured a new US-customer producing home appliances referred to as Customer Y. Production will be housed in the new factory and start with one model beginning June 2021. Customer Y is another customer that VSI cinched as a beneficiary from the US-China trade war diversion. Although beginning with the production of one model, Customer Y’s contribution could be as sizeable as VSI’s other US-based customer, estimated to reach approx. RM1bil topline contribution in the next two years, with a total of three models up for grabs.
  • HQ relocation for more production space: While 300K sqft of the new factory space will be reserved for Customer Y, the remainder will be reserved to set up an R&D center and to place VSI’s existing HQ. The current HQ space will be used to cater for Victory’s production floor.
  • Negotiations on the backburner: With facilities expected to be fully utilized by orders from existing and newlysecured customers, VSI has decided to focus on project execution and performance for its current customers instead of focusing on talks with prospective customers due to limited spare capacity.
  • FY20 capex: We have factored in a higher FY20 capex of RM200mil - where RM100mil is for the new factory, RM50mil will be utilized to purchase new machinery, and the remainder for maintenance capex.
• We continue to like VSI due to its: (i) strong order growth supported by its key customers’ product launches; (ii) its ability to offer turnkey EMS solutions as a vertically integrated player, and (iii) its efforts to diversify its customer base with opportunities to be secured from the US-China trade war.

Source: AmInvest Research - 15 Oct 2020