VS Industry - BUY - 28 Mar 2008

VS Industry – 2Q08 results in line with expectations (Results Note)



Price: RM2.84

Target Price: RM5.88

Recommendation: BUY



· 2Q08 topline of RM332.7m is a record for the company. Continuing strong loadings from key customers especially Dyson remain to be the driver behind the strong set of revenue for the quarter. Growing familiarity with the company’s execution capability and rising acceptance of the company’s suite of services from supply chain management to design and fabrication is helping to lift the company’s topline performance. At half time, topline of RM622.7m is already 48.5% of our full year’s estimates while net profit of RM42.3m is 47.4%. Higher effective taxes at 23.5% versus our assumed 20% is the main reason for the slight under achievement versus our forecast. In summary, forecast is considered in line with our expectations.

· QoQ, topline grew a sequential 14.7% on the back of higher loadings from key customers all round. Margins however was at 1.3% point lower at 15.2% mainly as a result of less favourable product mix and new client loadings with relatively lower volume runs and thus lower economies of scale.

· For the 6M08, revenue was up 22.5% while net profit grew by 29.3%. With the rising volume comes the economies of scale, helping the company to register improved profitability all round. GP% was an improvement to 15.8% from 14.7% previously while net profit margin improved 4 basis points to 6.8% despite higher overall effective taxes at 23.5% versus 21.5% previously.

· 3-sen tax-exempt dividend is declared (1H07: 5.5sen TE). We are estimating DPS of 25sen or a 40% payout for the year. Net gearing of 44% as at half time remain manageable.

· We remain positive on the company and given that the numbers are very much in line with our expectations, we are therefore maintaining our forecast for the time being. The counter had lost some 33% from its October 2007 peak of RM4.24 to the current RM2.84 and is currently trading at a lowly 4.6x FY08F with an estimated yield of 8.8% based on a DPS of 25sen. Our BUY is maintained with a target price of RM5.88 based on 8.8x CY08 earnings.