We downgrade our BUY recommendation on V.S. Industry (VSI) to HOLD with an unchanged fair value of RM2.75/share, pegged to an FY22F PE of 18x due to a run-up in share price.

VSI announced a temporary closure of three of its factories in Senai, Johor from 11 February 2021 to 17 February 2021 (7 days closure) after the Ministry of Health ordered the group to carry out deep cleaning and disinfecting exercise for those factories. Operations are to resume on 18 February 2021 or earlier, pending approval of the relevant authorities.

The 7-day closure is not expected to have an impact on the group’s earnings as the group has sufficient inventory buffer to make up for the loss in operation days for said factories. Thus, we make no changes to our forecasts.

We continue to like VSI, however we deem that it is fairly valued after the rise in share price. We like VSI due to: (i) strong order growth supported by key customers’ product launches, (ii) its ability to offer turnkey MES solutions as a vertically integrated player, and (iii) its customer diversification efforts with opportunities severed from the US- China trade war diversion.

Source: AmInvest Research - 11 Feb 2021