• V.S Industry (VSI) announced that its wholly-owned V.S International Venture is subscribing for 70.2 million new shares in Seeing Machines (SM) in order to maintain its current shareholding of 11.7%.

• The total consideration of the exercise is £3.5mil (RM19.3mil), and will be funded by internally generated funds. As of 31 Oct 2017, the group had a cash position of RM370.0mil, and a net gearing of 19.7%. Subsequent to the exercise, net gearing will increase marginally to 21.1%.

• Separately, Datuk Gan Sem Yan and Datin Gan Chu Cheng, who are major shareholders and directors of VSI, have also subscribed for 16.0mil new shares in SM.

• The investment dated back to 22 Mar 2016, when VSI invested circa RM39.4mil for a 12.1% stake in SM during the company's capital raising exercise. The investment is being treated as a financial asset on the group's balance sheet. We are neutral on this development.

• To recap, SM is a UK-listed developer of computer vision algorithms, processors and systems that enable machines to analyse the cognitive state of humans. Its primary product to date is driver monitoring systems, which are capable of detecting drivers' drowsiness or distraction through precision eye-tracking. The application aims to reduce road accidents, protect freights and save lives.

• We continue to like VSI due to: i) its association with Customer X, who plans a slate of new product launches over the next few years; ii) its ability to offer turnkey electronic manufacturing services (EMS) solutions being a vertically integrated player; and iii) its handsome growth prospects from FY18F-FY20F, underpinned by sustainable capacity expansions. Maintain BUY with fair value of RM3.30/share.

Source: AmInvest Research - 29 Dec 2017