VS Industry’s 1HFY14  results were within expectations, making up  51% of  our  full-year  FY14  forecasts.  The  1HFY14  numbers  generally improved  on  the  back  of  the  consolidation  of  its  China  operation,  as well  as  an  improved  product  mix.  We  are  leaving  our  forecasts unchanged  pending  a  meeting  with  management.  Maintain  NEUTRAL, with our FV unchanged at MYR1.42.

• Within expectations. VS Industry’s 1HFY14 results came in within our expectations,  making up 51% of our  full-year estimates. The company’s 1HFY14 revenue  surged 43.2% y-o-y to  MYR804.6m, mainly due to the consolidation  of  its  China  operations.  Correspondingly,  core  earnings expanded 72.7% y-o-y to MYR13.3m due to an improved sales mix  at its Malaysian operation.
• 2Q seasonally weaker.  The company’s  2QFY14 revenue and earnings fell  16%  and  61%  to  MYR367.3m  and  MYR3.8m  respectively  due  to weaker  showing  during  its  seasonally  weaker  2Q  (as  was  evident  in 2QFY13).  2QFY14  earnings,  however,  improved  >100%  y-o-y  due  an improved sales mix.  Meanwhile,  EBIT margins  widened  to 2.9% (from  -0.3% in 2QFY13)  as the company had a more diversified earnings base given the ramp-up of non-Dyson orders (ie more orders from Keurig for coffee machines and NextWindow for touch screens).
• Key  risks.  The  key  risks  include  a  weaker-than-expected  global macroeconomic environment,  which will dampen  demand for consumer electronics products, and loss of orders from key customers.
• Maintain  NEUTRAL.  We  maintain  our  NEUTRAL  call  for  now  as  we believe  that  the  stock  is  fairly  valued,  with  our  unchanged  FV  at MYR1.42, pegged to the  existing 10x P/E (which is line with  the stock’s 6-year  historical  mean).  We  are  leaving  our  forecasts  unchanged pending a meeting with management.

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Company Profile

VS  Industry  is  an  integrated  electronics  manufacturing  services  (EMS)  provider  of  products  from  world-renowned  manufacturers  of office and household appliances.

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Source: RHB