Again, a rapid rise in share price these few days followed by the release of some good news. This is the trend we are looking at these days. Recovering from the lows of 70 cents with the concern of un-utilized production capacity, we see VS trading at RM1 once again.
VS gained from the US-China trade war and got awarded with the contract from Bissell Inc. They are the makers floor care products and particularly an American brand that has most of its manufacturing in China.
Revenue Creation
The three year contract from Bissell would bring in RM 200 million at the last quarter this year. RM 700 million for FY 2020 & RM 1 billion for FY 2021. Sadly, it is not an addition the the current revenue reported but more of a replacement to the previous contracts that had ended.
That being said, for FY2019 we will still see VS reporting a negative growth in revenue compared to FY2018. We are looking at RM 900 million for revenue on average per quarter for the next 3 quarters.
Should VS Move Up?
We felt that with the contract from Bissell, the gap we saw back in December can be filled once again. But share price would likely float around RM1.15 to around RM1.00.
Although the market knows that the revenue would recover once again, the big question remains how much profit margin VS can churn from this customer. Therefore we suggest a buy price lower than RM1.00 for now and a trading band of 10% tops at RM1.10 to take profit.
Something To Add
*Most of the time, the release of good news continues when the share price is heading upwards. We would not be surprised to see new customer introduced by VS this year.
DBS report stated that:-
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Increased orders from its customer X
– Orders frm customer X for its beauty product line will result in additional RM240 million per annum on contribution over FY2020-21*Customer X = box build assembly & PCB & battery pack assembly
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Five customers currently in advanced negotiations
– Winning jobs in FY2019 to contribute to FY2020
