KUALA LUMPUR (July 25): Electronics manufacturing services (EMS) firm VS Industry Bhd is acquiring a 20% stake in NEP Holdings (M) Bhd for RM60 million.

NEP is a home-grown group of companies famous for its award-winning "Diamond" brand of water filtration system products.

In a statement today, VS Industry said it has agreed with NEP and its major shareholder Lim Chang Huat to subscribe for shares in NEP representing a 20% stake.

Upon completion of the acquisition, VS Industry said, NEP will be an associate company of VS Industry, and the latter will be able to adopt equity accounting for NEP's financial performance.

Established in 1995, NEP has expanded its range of water filtration systems to home-use products, such as water bar, water spa home aqua-therapy system, air purifier and coffee machine.

Besides Malaysia, NEP sells its products to Hong Kong, Singapore, Taiwan and China. With a network of 3,000 dealers, the NEP Group is now one of the largest health water enterprises in Asia.

For the financial year ended June 2016 (FY16), NEP's unaudited net profit was RM29.1 million, 36% higher than its FY15 net profit of RM21.4 million. Revenue rose 21% to RM185.4 million from RM153.2 million.

The acquisition comes with a net profit guarantee by Lim of at least RM40 million for FY17. Based on the guarantee, the acquisition is pegged at a reasonable price-to-earnings ratio of 7.5 times.

VS Industry said its acquisition price values the NEP group at RM300 million, versus the fair value range of between RM358 million and RM477 million assigned by independent market valuer, FHMH Corporate Advisory Sdn Bhd.

VS Industry managing director Datuk S.Y. Gan said the acquisition of NEP is strategic for the company.

"As a vertically integrated EMS corporation, we have very strong and capable research and development team. We can be an original design manufacturer to NEP, offering designing expertise to help develop new products and expand their offering.

"At the same time, NEP can leverage on our group's manufacturing facilities in Malaysia, China and Indonesia to increase its production efficiency and volume as it gears up to penetrate new markets," said Gan.

The RM60 million cash consideration will come from a combination of VS Industry's internal funds and bank borrowings. Based on its gross cash holdings of RM229.4 million and low net gearing of 0.2 times as at April 30, VS Industry will not have any issues funding the acquisition.

VS Industry rose 8 sen or 6.11% to close at RM1.39 today, for a market capitalisation of RM1.63 billion.