We think the stock’s recent sell down due to risk-off sentiments on exporters has been overdone. VS Industry has clear earnings drivers as it sees growing orders from existing/new customers. We opine its recent 12.1% stake acquisition in Seeing Machines could also open up potential business opportunities should future strategic collaborations occur. Maintain BUY, but lower TP to MYR1.68 (from MYR1.81, 33% upside) as we take into account a slight delay in the production start of a new prototype coffee brewer. An interim 0.8 sen dividend was declared, bringing YTD total dividend to 2.3 sen (1HFY15: 1.2 sen).

Diversifying its earnings base. We understand that management is currently in talks with several new and existing customers to secure more manufacturing orders that would help propel double-digit earnings growth in FY17F (Jul). VS Industry’s ability to take on more manufacturing jobs would be backed by its available spare capacity at its existing Johor plants. The group recently secured a contract to produce a home sports equipment product thatcould help grow earnings in the coming years.

Acquired 12.1% in Seeing Machines Ltd. In our view, we think the acquisition could yield potentially rewarding opportunities. While VS Industry is more well-known as a consumer appliances original equipment manufacturer (OEM), it also manufactures automotive component parts for a leading multinational (MNC) automotive supplier. This would well-position the groupfor potential collaborative opportunities with Seeing Machines.

Maintain BUY. We trim our FY16F-18F earnings by 3-12% to account for the slight delay in commencement of the new coffee brewer model. We favour the group for its attractive growth proposition going forward, which would be driven by an increasingly diversified earnings base as it sees strong orders from new/existing customers. Maintain BUY with a SOP-derived MYR1.68 TP. TheTP is supported by our corroborative DCF valuation.