Investment Highlights

• We upgrade V.S. Industry (VSI) to BUY from HOLD previou with a higher fair value (FV) of RM1.05/share (fr RM0.79/share previously) to account for higher earnin estimates. Our FV is based on an unchanged CY25F target of 15x , at parity to the group’s 5-year average. made no adjustment to our neutral 3- star ESG rating.

• We came back from an analyst briefing with a positive outlo maintaining our FY24F earnings but revised up FY25F-2 earnings by 44%/33% to reflect:
  
  (a) potential new models from key customers,
  
  (b) meaningful revenue and profit contribution from new developed capabilities, and
  
  (c) the reversion of China’s operation from losses to breakev in FY25F. Notably, our FY25F-26F does not account for possibility of onboarding a new customer by the end CY24.

• Since Sep 2023, the Group has been strengthening its mar positioning and value proposition to customers, especia customer X via value chain expansion. VSI successfu developed 4 in-house capabilities that are ready for ma production in FY25F.

• The 4 in-house capabilities include the production of liq silicone rubber (LSR) for hair care products, aluminium tube floor care products, “dipping” process for hair care produ and “blistering” process for vacuum cleaners. Notably, thes capabilities command materially higher gross profit mar (GPM) than the group’s 5-year average GPM of 10.5%. Hen we believe this could meaningfully boost VSI’s FY25F-2 earnings.

• Additionally, VSI guided for a potential new customer to secured by end of CY24. For now, the agreement is pend formal signature by the customer's management team, wh have verified VSI's technical capability to manufacture products. We hold the positive view that this new customer h the potential to replace the loss-making customer Y.

• Lastly, we anticipate that VSI's 43.3%-owned China operat will achieve breakeven point or a modest profit in FY2 primarily as a result of acquiring an additional 43.3% equ stake in a Vietnam-based associate by June 2024, which w convert the associate into a 62%-owned subsidiary.

• After our earnings revision, the stock is now trading at attractive CY25F PE of 12x, 20% discount its 5-year average 15x.

Source: AmInvest Research - 1 Apr 2024