Earnings profile enhanced by turnaround in China. We lift our FY17-19 earnings forecasts by 6%-12% to account for (i) higher USD/MYR forex rate and (ii) a stron

We have an update note on V.S. Industry today.

V.S. Industry (VSI MK; BUY; TP: MYR1.88) - Improving prospects

• Earnings profile enhanced by turnaround in China. We lift our FY17-19 earnings forecasts by 6%-12% to account for (i) higher USD/MYR forex rate and (ii) a strong turnaround in the China operations (via 43.6%-owned VSIG) underpinned by solid demand for VSIG’s new ODM air purifier models. Correspondingly, our TP is raised to MYR1.88 (+5%) on unchanged 14x CY18 PER (based on 30% premium to peers). VSI is a growth stock with 17% 3-year earnings CAGR and is our preferred player in the EMS space; reiterate BUY.
• 2QFY7/17 to improve slightly QoQ, boosted by China. The recent positive profit alert by 43.6% owned V.S. International Group Limited (1002 HK, Not Rated) coupled with a sustained strength in the USD against MYR prompt our earnings upgrade. We now expect VSI to see a sequential improvement in 2QFY17 earnings to the tune of MYR34m-40m (from MYR34m in 1QFY17), mainly lifted by a turnaround of its China operations, as mentioned in the recent announcement. VSIG/VSI will be reporting their 2QFY17 results on 21st/28th Mar 2017 respectively.
• Still a tale of two halves. FY17 would still be a tale of two halves whereby we expect the Malaysia operation to outperform only in 2HFY17 on the commencement of key EMS projects (i.e. vacuum cleaner and coffee brewers). We expect strong earnings growth momentum to continue over the next 3 quarters, thus sustaining investors’ sentiment on this stock.