KUALA LUMPUR (Sept 28): Hong Leong Investment Bank (HLIB) Research said it is neutral on VS Industry Bhd (VSI)’s additional 11% stake acquisition in HT Press Work Sdn Bhd (HTPW) for RM2.6 million, as it will take a while for this to have meaningful contributions.

In a research note on Friday, HLIB said it is ‘neutral’ on VSI at 99.5 sen with an unchanged target price of 99 sen and that the company's overall order guidance remains flattish across the board with the exception for Customer Y.

Customer Y is a customer the company clinched as a beneficiary from the US-China trade war diversion.

“The rationale of acquiring [the 11% stake in HTPW] is to leverage on HTPW’s expertise to enhance VSI’s value chain within the tools and die design and fabrication, machining and surface finishing division. We understand that with this acquisition, VSI would be able to broaden its scope of work for Customer X coupled with securing new Customer W in hand,” HLIB said.

VSI will be responsible for supplying the components part for Customer W and HTPW will be doing the anodising of aluminium parts.

“This new Customer W is expected to book in RM100 million for FY2024 (financial year 2024). Despite the initial small order sales forecast, we understand that the margin contribution should be in the higher range when compared to its existing customers,” the research firm said.

The group’s US-based customer contributed RM780 million in FY2023 and is expected to increase to RM800 million for FY2024.

For coffee brewers, FY2023 recorded RM500 million in sales and this is expected to increase to RM600 million in FY2024.

Similarly for pool cleaner customers, management is projecting revenue to increase by RM100 million from RM300 million in FY2023.

“With the pickup in product demand from Customer Y, the sales are expected to climb up to RM350 million in FY2024 with improvement in order flow. US-based customers and coffee brewers are expected to pick up with the festive season orders coupled with new product launches,” HLIB said.

This prompted the research firm to reiterate a ‘hold’ call with an unchanged target price of 99 sen based on 16 times price-earnings multiple of FY2024.

“We reiterate our 'hold' call in view of the volatile market climate and cautious demand. We remain wary as demand from major brand owners could still be subdued given the recessionary fears and subdued consumer sentiment,” the research firm said.