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PP 7767/09/2010(025354)

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lts N ot e
30 September 2010
MARKET DATELINE

VS Industry Share Price


Fair Value
:
:
RM1.42
RM2.24
FY10 Core Net Profit Grew 197.6% YoY Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (VS; Code: 6963) Bloomberg: VSI MK


Net Core EPS Net
Turnover Profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
FYE
(RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
Jul
2010 800.2 24.3 13.6 19.7 197.6 7.2 - 0.9 0.3 9.6 6.1
2011f 889.3 50.0 28.0 28.0 42.0 5.1 - 0.8 0.1 12.8 10.8
2012f 995.8 58.1 32.5 32.5 16.3 4.4 - 0.7 0.0 13.8 12.2
2013f 1,103.2 65.2 36.5 36.5 12.3 3.9 - 0.7 net cash 14.3 14.1
# Excludes exceptional items
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus


♦ Above expectations. VSI’s 4QFY07/10 net profit of RM14.2m brought √ Above n.a.
FY10 core net profit to RM35.2m (+197.6% yoy), accounting for 154.8% In Line
of our full-year estimate. Despite the full-year revenue being largely in line Below

with our numbers, the key variances were: 1) better-than-expected full- Issued Capital (m shares) 179.7
year EBIT margins of 7.1% (vs. our forecast of 5.7%), which we believe Market Cap (RMm) 255.2
was due to operating leverage effect on the back of higher utilisation rate; Daily Trading Vol (m shs) 0.07
and 2) lower-than-expected effective tax rate. 52wk Price Range (RM) 1.145-1.42
Major Shareholders: (%)
♦ 4Q revenue grew 29.5% qoq while core net profit jumped 66.7% Beh K.L & Gan C.C 31.0

qoq. QoQ, revenue grew 29.5% on the back of stronger demand for its Gan S.Y & Ling S.M 7.9

products. 4Q core net profit, however, jumped 66.7% qoq thanks to: 1) FYE Jul FY11 FY12 FY13
lower effective tax rate of 26.4% (vs. 3Q10 effective tax rate of 41.0%); EPS chg (%) 13.4 4.9 n.a.
2) lower interest expense (-37.6% qoq); and 3) higher MI. Var to Cons (%) n.a. n.a. n.a.

♦ Declares a final single-tier DPS of 5.0 sen, tax-exempt. VSI declared


PE Band Chart

a final single-tier DPS of 5.0 sen, which was above our expectations. Full-
PER = 10x
year single-tier DPS stood at 6.5 sen (FY09: 1.3 sen), which implies a net PER = 7x
payout ratio and net yield of 48% and 4.6% respectively. PER = 4x

♦ Risks. Key risk is deterioration in the global macroeconomic environment,


which would lead to a slowdown in consumer spending and demand for
consumer electronics.

♦ Forecasts. Despite the full-year FY10 revenue being in line with our
Relative Performance To FBM KLCI

number, we have revised our FY11 and FY12 revenue forecasts up by


1.8% and 3.8% respectively as we expect orders for its products to pick up
FBM KLCI
further, guided by the management. At the same time, we have raised our
FY11 and FY12 EBIT margins assumptions to 7.7% and 8.0% (from 7.0%
and 7.7%). As a result, our FY11 and FY12 earnings forecasts have been VS Industry

raised by 13.4% and 4.9% respectively. Based on management’s guidance


for a 40-50% payout, we have also revised our FY11 and FY12 net DPS to
11.5 sen (from 6.7 sen) and 13.0 sen (from 7.3 sen) respectively, based
on a net payout ratio of 40.2-41.4%. We introduce our FY13 numbers.

♦ Investment case. Our fair value has been raised to RM2.24 (from David Chong, CFA
RM1.87) based on CY11 target PER of 7.5x. We believe the pick-up in its (603) 92802179
orders should generally be positive for the company moving forward. We david.chong.@rhb.com.my
reiterate our Outperform call on the stock.

Please read important disclosures at the end of this report. Page 1 of 3

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30 September 2010

Table 2 : Results Review


QoQ YoY YoY
FYE Jul (RMm) 4Q09 3Q10 4Q10 FY09 FY10 Comments
(%) (%) (%)
Revenue 171.7 192.7 249.5 29.5 45.3 724.8 800.2 10.4 Stronger yoy and qoq largely due to the
strong recovery in orders for their
products.
EBIT 10.9 14.6 18.2 24.7 66.4 42.6 56.8 33.2
Net interest expense (1.4) (1.5) (0.9) (37.6) (35.1) (6.8) (5.4) (20.4) Net gearing was 0.27x as at end-4Q10
(3Q10: 0.33x; 4Q09:0.34x)
Associates (8.4) (0.3) (0.9) >100 (89.6) (16.2) (3.6) (77.5) Losses mainly coming from VSI’s
associates in China.
Exceptionals 0.0 (2.0) (4.9) >100 nm (6.6) (10.9) 65.2 FY10 relates to impairment loss on
investment in associates while FY09
mainly relates to provisions made for
doubtful debts and slow moving
inventories as well as unrealised forex
losses.
Pre-tax profit 1.1 10.8 11.5 6.9 >100 13.0 36.8 >100

Tax (2.5) (4.4) (3.0) (31.1) 22.7 (8.8) (13.3) 50.7


Minority interest 0.0 0.2 0.8 >100 >100 1.0 0.8 (25.7)
Net profit (1.4) 6.5 9.3 42.7 >100 5.2 24.3 >100
Core net profit (1.4) 8.5 14.2 66.7 >100 11.8 35.2 >100

Margin (%)
EBIT 6.4 7.6 7.3 5.9 7.1 FY10 margin expansion due to operating
leverage effect as a result of higher
utilisation rate during the quarter while
qoq margin contractions was due to higher
raw material prices during the quarter.
Pre-tax 0.6 5.6 4.6 1.8 4.6
Effective tax rate 224.7 41.0 26.4 67.7 36.1 Above statutory tax rate as certain
expenses were non-deductible for tax
purposes.
Net profit margin (0.8) 3.4 3.7 0.7 3.0
Core net profit (0.8) 4.4 5.7 1.6 4.4
margin
Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions


FYE Jul (RMm) FY10a FY11f FY12f FY13f FYE Jul FY11F FY12F FY13F

Turnover 800.2 889.3 995.8 1,103.2 Vacuum cleaner:


Turnover growth (%) (3.6) 11.1 12.0 10.8 - sales volume growth (%) 15.0 14.0 13.0
- % chg in ASP 0.0 0.0 0.0

EBITDA 84.9 97.2 108.7 119.3


EBITDA margin (%) 10.6 10.9 10.9 10.8

Depreciation (28.2) (28.7) (29.8) (30.9)

EBIT 56.8 68.6 78.9 88.4


EBIT margin (%) 7.1 7.7 7.9 8.0
Net Interest (5.4) (6.3) (5.8) (5.8)
Associates (3.6) 5.0 5.0 5.0
Exceptionals (10.9) 0.0 0.0 0.0
Pretax Profit 36.8 67.3 78.1 87.6
Tax (13.3) (16.8) (19.5) (21.9)
Minorities 0.8 (0.5) (0.5) (0.5)
Net Profit 24.3 50.0 58.1 65.2
Core Net Profit 35.2 50.0 58.1 65.2
Source: Company data, RHBRI estimates

Page 2 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
30 September 2010

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer,
invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an
interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular
investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend
on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or
damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group
may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of
any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services
from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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A comprehensive range of market research reports by award-winning economists and analysts are exclusively
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