KUALA LUMPUR (Sept 29): Hong Leong Investment Bank (HLIB) Research on Wednesday reiterated its "buy" call on VS Industry Bhd at RM1.56 and revised up its target price (TP) to RM1.88 (from RM1.77) as it foresees growth catalysts from its US customer and pool cleaner.

In a note on Wednesday, HLIB analyst Syifaa’ Mahsuri Ismail said that overall, things are looking up for VS Industry due the two growth catalysts, namely the US customer and pool cleaner.

“Note that the pool cleaner contributed the highest margin, while the US customer’s margin was higher than [what the analyst termed as] Customer X,” she said.

For Customer Y, she said, production of the first model commenced in August 2021.

“Positively, Customer Y is aggressively diversifying its manufacturing footprint and we gather that it is on track to have Malaysian manufacturing at scale by the end of 2021,” she said.

She also noted that revenue contributions from Customer X and Customer K are expected to be sustained throughout the financial year ending July 31, 2022 (FY22) with existing contracts.

Despite operating at full capacity, she is upbeat that VS Industry is still continuing its discussions on boarding new customers.

“Although still in the preliminary stage of discussions with eight to 10 potential customers, these should serve as growth catalysts over the longer term with further upside to margins,” she said.

As for VS Industry's Indonesian operations, she said, management expects the performance to remain satisfactory.

China losses are also expected to be narrowed further due to the continual asset-light strategy, she added.

Syifaa' increased her FY22/23 forecasts for VS Industry by 7%/6% respectively after factoring in higher top-line growth and better margins.

At 9.58am on Wednesday, the stock was unchanged at RM1.56, valuing the group at RM6.26 billion.