KUALA LUMPUR: VS Industry Bhd remains firmly on track to achieve robust earnings growth in the coming financial years, underpinned by increasing orders by its key customers, said Public Invest Research.
PublicInvest said during its quarterly meet-up with the investment community yesterday, the management team at VS has indicated that its two local box-build assembly lines are already running at optimal capacity for a particular significant customer, with more to come in the coming months to meet rising demand.
It said the current facilities are able to run up to six assembly lines for one customer, with a new warehouse cum production facility – with the potential to run another six lines –currently being built to further expand its box-build capacity.
It said the overall plant utilisation is currently at 80 per cent, up from 68 per cent in financial year 2016.
For its operation in China, PublicInvest said VS overall plant utilisation is now at 60 per cent since the commencement of production of air purifiers for Perfect China.
“Management is still in the midst of negotiating for a replenishment of orders, and indications continue to remain positive,” it said.
Besides that, PublicInvest said VS 20 per cent-owned NEP Holdings (M) Bhd will become a key contributor for financial year 2018 onwards as it is committed to award all new manufacturing orders to VS, including the supply contract for the Haier Group.
To recap, NEP has a five-year product sales agreement with a subsidiary of Haier where it supplies products to Haier and the latter distributes them through its 40,000 strong local retail network.
VS acquired stake in NEP in July last year.
PublicInvest has reaffirmed its “outperform” call on VS with unchanged target price of RM2.36 based on 16 times fully-diluted calendar year 2018 earnings per share.