KUALA LUMPUR (Oct 15): Hong Leong Investment Bank (HLIB) Research has raised VS Industry Bhd’s earnings forecasts for the financial year ending July 31, 2022 (FY22) and FY23 by 9% and 7% respectively, premised on higher capacity expansion.

HLIB Research analyst Syifaa’ Mahsuri Ismail and Tan J Young said the research house is positive on the news that VS Industry has entered into a sales and purchase and construction agreement with Ipark Development Sdn Bhd to acquire six pieces of land with industrial buildings in Senai worth RM98.8 million.

Commenting on the outlook of the group, the analysts noted that the management shared they are slowing down on talks with four other customers as they are expected to be fully occupied after the commencement of production for a new customer (Customer Y).

They noted the capital expenditure (capex) of the group for FY21 is guided to be RM200 million, including the RM150 million allocated for Customer Y.

“However, should the other potential customers be willing to give time for VS Industry to build new factories, the group is open to expand further. Additionally, management shared their concern on hiring workers but we are assured that they could mitigate this by aggressively hiring local workers and getting in foreign workers from nearby factories that have been closed.

“Furthermore, we understand that Customer X [is] tendering for [its] new product in December 2020 and VSI [is] expected to participate in it,” they said.

HLIB Research has reaffirmed its "buy" rating for VS Industry with a higher target price of RM2.92 (from RM2.70) pegged to unchanged PE of 17 times calendar year 2022 earnings per share.

“We view the premium PE multiple is justifiable, taking into account VS Industry's multi-year growth trajectory from existing customers coupled with the proven capability to secure more projects that yield higher margins in the near future,” said the analysts.

They added: “As the biggest EMS [electronics manufacturing services] player in Malaysia with a solid track record, we opine that VS Industry is on the trajectory to achieve new high order value amongst the intensifying trade diversion.”

At the time of writing, shares in VS Industry rose 1.29% or three sen to RM2.36, bringing its market value to RM4.44 billion. It saw some 2.56 million shares changed hands.

Year to date, the stock is up 76% from when it was trading at RM1.34 apiece.