VS  Industry’s  MYR35.2m  1QFY15  earnings  were  above  our expectations.    Maintain  BUY  with  revised  MYR2.95  TP  (vs  MYR2.92, 35.9% upside). Earnings rose 268.4% YoY on the back of higher sales, EBIT  margin  expansion  and  tax  incentives  from  its  enhanced  exports initiatives.  An interim dividend of  3 sen per share was declared for the quarter under review.   
 
Above  expectations.  VS  Industry’s  1QFY15  (Jul)  earnings  of MYR35.2m were above expectations. They were up 268.4% YoY on the back  of:  i)  a  24.5%  YoY  rise  in  sales  –  largely  contributed  by  Keurig coffee  machines,  ii)  EBIT  margin  expansion  from  higher  utilisation  rate and  improved  product  mix,  and  iii)  tax  incentives  relating  to  the enhanced export incentive for the quarter under review. By comparison, in  4QFY14,  earnings  eased  3.4%  QoQ.  However,  we  note  that  the higher earnings in the preceding quarter were due to higher utilised tax incentives  of  MYR18m  (1QFY15:  ~MYR3.9m).  Stripping  off  these incentives,  1QFY15’s  core  earnings  rose  68.6%  QoQ,  driven  by  higher sales and EBIT margin expansion from increased utilisation rates as well as  improved  product mix  from  the  production  of  the  new  Keurig  coffee machine  model  that  began  in  May.  An  interim  dividend  of  3  sen  per share was declared for the quarter under review.    

Forecasts.  As  1QFY15  earnings  were  above  expectations,  we  raised our  FY15-16  EPS  forecasts  by  3-8%  respectively  after  updating  our sales  and  margins  assumptions,  the  enlarged  share  base  from conversion  of  ESOS  and  taking  into  account  the  seasonal  sales weakness  from  November-April.  We  also  take  the  opportunity  to introduce our FY17 projections. Key risks to our recommendation include a  weaker-than-expected  global  economic  environment  that  could dampen sales and dependence on orders from key customers.  

Investment case. We maintain our BUY call with a revised MYR2.95 TP (from MYR2.92), which is based on a recurring FY16F P/E of 10x. This is broadly in line with its closest peer, SKP Resources’ (SKP MK, BUY, TP: MYR0.85)  11x  valuation.  The  stock  is  currently  trading  at  an undemanding FY16F P/E of 7.8x relative to its 3-year earnings CAGR of 21.3%.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

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

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Source: RHB