HLIB Reiterates Its ‘buy’ Rating on VS Industry and Increases the Target Price to RM1.88 Due to the Company’s Improved Earnings Outlook

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On Wednesday, Hong Leong Investment Bank (HLIB) Research renewed its “buy” recommendation on VS Industry Bhd at RM1.56 and increased its target price (TP) to RM1.88 (from RM1.77), citing growth catalysts from its US customer and pool cleaner.

Syifaa’ Mahsuri Ismail of HLIB stated in a note on Wednesday that VS Industry’s prospects are improving generally as a result of two growth drivers, namely the US customer and pool cleaner.

“Note that the pool cleaner contributed the most profit, while the US customer had a better margin than [what the analyst referred to as] Customer X,” she explained.

According to her, production of the first model for Customer Y began in August 2021.

“Positively, Customer Y is aggressively broadening its production base, and we understand that it plans to establish scaled manufacturing in Malaysia by the end of 2021,” she said.

Additionally, she stated that revenue contributions from Customers X and K are expected to be sustained through the fiscal year ending July 31, 2022 (FY22) on the basis of current contracts.

Despite working at full capacity, she is optimistic that VS Industry will continue to pursue new customer acquisition.

“While we are currently in the early stages of negotiations with eight to ten potential customers, these should act as growth drivers in the long run, resulting in additional margin expansion,” she said.

Concerning VS Industry’s Indonesian operations, she stated that management anticipates continued satisfactory performance.

China’s losses are projected to reduce further as a result of the company’s ongoing asset-light strategy, she noted.

Syifaa’ upped her FY22/23 predictions for VS Industry by 7% and 6%, respectively, to reflect stronger top-line growth and margin expansion.

The shares remained unchanged at RM1.56 at 9.58 a.m. on Wednesday, valuing the group at RM6.26 billion.

Published by Zack Baharum

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