Virus Uncertainties Could Hit Profitability

Prospects

• V.S. Industry Bhd’s (VSI) long-term outlook remains positive with its consistent earnings track record and strong positioning in the EMS market. The group is in the tail-end of discussion with several household appliances brand owners, albeit a deal could be delayed due to uncertainties arising from the recent coronavirus outbreak.

• Subsequently, we are ceasing coverage on VS Industry Bhd due to reallocation of internal resources. Our last recommendation was a BUY.

• VSIG has resumed partial operations earlier this week after an extended closure amid efforts to contain the virus in China. We expect production to come on-line gradually as more workers return to work following a country-wide travel ban imposed earlier.

• There is also a risk of production hiccups due to the inability to secure key components needed to run the production lines. Extended manufacturing gridlocks could eventually lead to delayed deliveries and lower profitability. For now, we believe that the situation is still under control, although we remain cautious of the increasing risk of supply-chain issues if the outbreak extends beyond March.

• Our last assigned target price was RM1.50, by ascribing to a target PER of 17.0x to its FY20 EPS of 9.0 sen as we remain confident of the group’s long-term earnings prospects, despite near-term uncertainties in the global landscape.

Source: Mplus Research - 21 Feb 2020