STOCK FOCUS OF THE DAY
V.S. Industry : Warming up growth engine BUY
We reiterate our BUY recommendation on V.S. Industry (VSI) with unchanged forecasts and fair value of RM3.30/share. Our fair value is pegged to a CY18F PE of 15x. VSI's 1QFY18 core net profit came within expectations at RM44mil, representing a YoY growth of 28%, but a 10% QoQ decline. The core profit accounted for 15% of our full-year forecast and 18% of consensus estimate. An interim dividend of 1.50 sen was declared during the quarter (vs. 1.20 sen in 1QFY17), in line with the group’s practice of paying out ~40% of profit.
The QoQ decline in earnings stemmed from higher losses from China, which is represented by the group’s 44%-owned V.S. International Group (VSIG). The losses were associated with pre-operating expenses for new products that would commence mass production in the coming quarters. Management expects VSIG to return to the black in 2QFY18. Earnings are expected to go into full swing in 2HFY18 as the group captures contribution from all its seven assembly lines. The group is also well prepared for more contract wins with its upcoming factory that could house up to 12 additional assembly lines.
We understand the group is currently in the midst of procuring new jobs from an American lifestyle product and a Swiss hygiene system. If awarded, the contracts could expand VSI's FY19F revenue by more than RM1bil, based on our estimate. We have not factored the potential contribution from these contracts into our earnings projections.
Others :
Consumer : A subdued 2018 NEUTRAL
STOCKS ON RADAR
Jaks Resources, Prestar Resources, Malton, MKH
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DISCLAIMER:
The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.
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