Investment Highlights

• We maintain our BUY recommendation, forecasts and fair value (FV) of RM1.98/share for V.S. Industry (VSI), based on 20x FY23F earnings, in line with its historical 1-year average PE. There is no adjustment to our FV based on a 3-star ESG rating as appraised by us (Exhibit 3).

• Following Andy Hall's recent comments on VSI during an external party’s briefing held last week, VSI has reached out to the migrant worker rights specialist for further clarification. Here are the comments from Hall according to VSI’s announcement to Bursa:
  • “… there is a need to conduct further due diligence with regards to the situation of migrant workers at suppliers of many multinational company (MNC) brands in Malaysia.
  • “Areas of concern include the legality of the use of outsourced migrant workers through third party agents, the risks inherent in the government’s recalibration scheme as well as working hours, living wage and social dialogue issues.
  • “… recent comments were not meant as a direct reference to indicate irremediable migrant worker issues at VSI.
  • “I have no intention to launch further public campaigns against any specific companies that are open to constructive dialogue on migrant worker rights.”
• To recap, most of VSI’s main customers are based in Western countries, with 40% of its revenue from a UK customer, another 40% from US customers, and the remaining from European and other countries. Based on our understanding, VSI currently has ~5K foreign workers, of which ~1k are contracted migrant workers through third-party agents. VSI has a total of ~9K workers in Malaysia.

• VSI has lower customer concentration risks compared to its peers. The group also has existing operations located outside Malaysia (including Indonesia and China, with a revenue contribution of 9% and 4% respectively, with extra capacity to cater for more volume).

• We reiterate our BUY recommendation for now as we deem that the risk appears under control at this juncture.

Source: AmInvest Research - 7 Dec 2021