V S Industry Bhd
(Oct 5, RM1.46)
Maintain buy at RM1.46 with revised target price of RM1.85 (from RM1.52): 12M10 revenue jumped 10% to RM800 million while net was up 365% to RM24.3 million mainly as a result of better associate’s performance.
Improved demand and rising economies of scale had all helped to underpin a better FY10 which was some 7% higher than our forecast at the net.
Quarter-on-quarter, revenue jumped 30% on the back of higher orders from key customers namely Dyson as well encouraging uptick from its Indonesian EMS operation, mitigated however by higher provisioning associated with its coal operation in Indonesia.
Year-on-year, revenue surged 45% while net was up nearly eight-folds in the absence of substantial associate losses and improved demand from its key EMS clients.
Management is guiding positively on the back of encouraging demand from key customers. We gather from management that order visibility is now a good six months and with new customers on-board, FY11 should be a positive year.
A surprising final five sen single-tier dividend brings the total dividend to 6.5 sen for FY10 which is higher than our forecast of 3.2 sen.
Payout of 48% is not a problem given the relatively low gearing of 27% coupled with strong operational cash flow of RM47 million.
Upping FY11F by 16% to RM39.4 million and introducing our FY12F. Raising target price to RM1.85 on eight times CY11F (from RM1.52 on eight times FY10F previously).
Improving prospects on the back of the current global economic uptick, absence of further provisioning for their Indonesian mining project coupled with better associate performance should be potential rerating catalysts.
Yield of 6% should help to underpin any substantial downside risks. Buy maintained. — Kenanga IB Research, Oct 4
This article appeared in The Edge Financial Daily, October 6, 2010.
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