AmInvest continues to like the EMS provider due to its strong order growth supported by its key customers’ product launches
by NUR HAZIQAH A MALEK / pic credit: vs-i.com
ELECTRONICS manufacturing services (EMS) provider VS Industry Bhd’s moves to secure a new customer in the US producing home appliances and a new factory are viewed favourably by AmInvestment Bank Bhd (AmInvest).
The investment bank said the new customer, which VS Industry calls as ‘Customer Y’, is expected to contribute positively to the group’s earnings.
“Customer Y is another customer that VS Industry clinched as a beneficiary from the US-China trade war diversion,” noted AmInvest in a research note.
It added that Customer Y’s contribution could be as sizeable as VS Industry’s other US-based customer, estimated to reach RM1 billion topline contribution in the next two years with a total of three models up for grabs.
AmInvest maintained a ‘Buy’ call on VS Industry with a higher fair value of RM2.75 per share (previously RM2.60 per share), pegged to an unchanged financial year 2022 (FY22) private equity valuation of 18 times after raising its FY22 forecast (FY22F)/FY23F by 5%-11% to account for Customer Y’s revenue contribution.
“We continue to like VS Industry due to its strong order growth supported by its key customers’ product launches, its ability to offer turnkey EMS solutions as a vertically integrated player and its efforts to diversify its customer base with opportunities to be secured from the US-China trade war,” it said.
Maybank Investment Bank Bhd analyst Kevin Wong called for a ‘Hold’ on VS Industry as the research house believes most of its earnings growth catalysts have been priced in at this juncture.
“We raise our FY22E/FY23E net profit by 2%-7%, but maintain our RM2.45 target price, pegged to 19 times calendar year 2021 price-to-earnings ratio at +1 standard deviation of mean,” he said.
The research house nudged up the net profit after factoring in a conservative RM200 million to RM400 million order value from Customer Y due to the initial production stage of a new product and customer.
“However, in the mid-to-long term, we believe there are further upsides to volume loading and/or addition of models.
“Overall, VS Industry remains a trade war beneficiary as Customer Y’s current key supplier is based in China,” he said.
VS Industry entered a sales and purchase agreement (SPA) with Ipark Development Sdn Bhd to acquire six pieces of land with industrial buildings, which will eventually be its new factory on a total land size of about 413,682 sq ft in Senai, Johor.
The SPA was satisfied with a cash consideration of RM98.8 million, and the acquisition and commencement of production are expected to take place in June 2021.
The new factory will be primarily utilised for Customer Y’s production, while the company plans to relocate its headquarters to this new property. VS Industry estimates its customer’s order value to reach up to RM1 billion in two years, with about RM50 million capital expenditure for its initial production line.