V.S. Industry remains one of our top BUY picks for the sector, with our TP of RM1.45 translating to a +38% upside. The group is a regional trade diversion play, with operations in Malaysia, Philippines and Indonesia. Production in Philippines is expected to commence in April 2025, which will drive our FY26F earnings growth of +44% YoY. The pipeline remains healthy, with the group bidding for RM1.4bil worth of new orders from Customer X. Longer term, we do not discount potential spillover effects from the establishment of the Johor-Singapore Special Economic Zone (JS-SEZ).

• BUY at unchanged target price of RM1.45. This is based on a target PE Of 17x and CY26 EPS.
• Philippines operations to commence in April 2025. This drives of FY25F earnings growth forecasts of +44% YoY. Broadly within our expectations, guided FY26 revenue contributions from Philippines are RM800mil. While the total value of orders secured is RM1.2bil (see here), it will take time for production to ramp. As the group previously had no presence in the Philippines, to facilitate a smooth start up, certain processes will still be supported by its Malaysian operations in the initial days.
• Upside from ongoing tenders. Although earnings growth for the next two years is sorted (subject to execution), the group is not resting on its laurels. It is bidding for three new models (both in Malaysia and Philippines) from Customer X, which has a cumulative annual value of RM1.4bil (+26% to FY26F revenues). A decision could be made as early as 1QCY25. Customer X aside, the group is still in discussions with a new medical device customer. We view this as a positive form of diversification, to be less reliant on consumer electronic products. With the space vacated by Customer Y, the group also has capacity to take on a new anchor customer, with annual revenue potential of up to RM1bil.
• Potential spillover from JS-SEZ. Albeit still early days, we are positive on the development. Senai-Skudai, where the group's manufacturing operations are located in, is part of listed flagship zones. It has been reported that companies undertaking new investments in high growth and value-added activities within JS-SEZ, will benefit from special tax rate of 5% for up to 15 years. These activities include medical devices, an area the group is currently pursuing. Similar to what has happened in Penang, there could also be supply chain localisation opportunities in our view, with government targets to attract 50 high value projects within five years.

Source: AmInvest Research - 16 Jan 2025