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PP 7767/09/2010(025354)

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

VS Industry Share Price

Fair Value
FY10 Core Net Profit Grew 197.6% YoY Recom : Outperform

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
(RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
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
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
reiterate our Outperform call on the stock.

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Table 2 : Results Review

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
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
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
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
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

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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
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
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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.

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subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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