VS Industry counter stays on the radar, RHB Research ups target price to RM1.38

ELECTRONICS manufacturing services (EMS) provider VS Industry Bhd has retained its ‘Buy’ call at RHB Research with a higher 52-week target price of RM1.38, expecting that its earnings recovery momentum should accelerate in the next two quarters on stronger seasonality.

“VS Industry’s 9MFY24 results beat expectations on stronger-than-expected margins recovery. We believe the share price rally still has legs, given solid earnings delivery, margins upside potential, and positive news flows to sustain the bullish sentiment on the stock,” it said in a note released yesterday (June 20).

Meanwhile, Public Investment Bank Bhd has retained a ‘Neutral’ call on the stock with a target price of RM1.04 while HLIB Research has upgraded the counter to a ‘Hold’ from ‘Sell’ with a target price of RM1.04, up from 71 sen.

The counter yesterday ended 5 sen up to RM1.20 (52-week high/low RM1.26/71 sen), its highest since February 2022, valuing the company at RM4.7 billion.

VS is Malaysia’s largest electronics manufacturing services (EMS) provider, 4th largest in Asean and top 50 in the world. It is a vertically integrated corporation and possesses expertise to serve customers across various industries.

For the third quarter ended April 30, 2024 (3Q24), the company’s net profit slightly more than doubled to RM54.4 million on a revenue of RM1.011 billion,

It attributed the improved earnings mainly attributable to higher orders from key customers, which in turn increased the overall utilisation rate of production capacity, in addition to having a favourable product sales mix in Malaysia.

In its report, RHB Research said its target price of RM1.38 (inclusive of a 2% ESG discount) was based on a higher P/E multiple of 19-times from 16-times to reflect the promising prospects.

It added that the development of new capabilities were progressing well, with commercial production partially commencing in April, which should lead to more margins enhancement moving forward when the production moves into full swing and more capabilities start contributing upon reaching optimal efficiency.

“Additionally, we gather that orders from Customer X have continued to improve and VSI has participated in new job tenders (results expected to be known by end 2024),” it said.

In its report, Public Investment Bank Bhd said VS Industry’s recovery on all fronts was encouraging, reflective of improvement in operating conditions and some normalisation in orders as customers are reportedly re-stocking on inventories.

“There is scope for earnings upside as management has alluded to the possibility of securing new customers by this year-end, contributions of which we are not accounting for as yet as we err on the side of conservatism.

“The longer-term investment merits of the company continue to remain attractive, though we maintain our Neutral call given limited upsides vis-à-vis our valuation,” it said.

HLIB Research said things were looking up with launches of several new models by certain customers which will keep VSI occupied in the mid-term.

“VSI is poised to strengthen its vertical integration capabilities with the recent successful development of several new processes in-house…Despite the macro uncertainties we opine that things are gradually looking better for,” it said. – TMR