Monday October 8, 2007

Contracts put VS Industry in good stead


KENANGA Investment Bank Research is upbeat on VS Industry and believes there is further upside to the stock based on its current performance and contracts ahead.

The company recently posted an impressive set of results, with revenue hitting slightly above RM1bil and net profit RM71mil.

An analyst with Kenanga Research said revenue was 6.8% above its forecast and earnings 12.4% above street estimates. “We have a buy recommendation with an upward bias.”

VS Industry, a contract manufacturer of household electrical products, ventured into the coal mining business in 2005 by investing RM12.3mil for a 45% stake in PT VS Mining Resources (PTVS).

PTVS recently won a contract from TNB Fuel Services Sdn Bhd to supply 65,000 tonnes of steam coal to a power plant in Manjung, Perak.

“This is the second significant contract clinched by PTVS, the first being a contract last year to supply coal to Indonesia Power, one of the major power suppliers in Indonesia,” said the analyst.

He said management was hopeful that it could secure a larger contract of between one million and three million tonnes per annum eventually, which could translate into potential revenue of RM17mil to RM51mil for PTVS.

He also said PTVS, via its unit PT Berkat Banua, had five licences for coal extraction from 902ha in Kalimantan, Indonesia, and that area had estimated reserves of 50 million tonnes, which are worth RM10.3bil based on an estimated coal price of US$60 to US$70 per tonne.

SBB Securities said VS Industry’s stellar performance was mainly attributed to higher sales to its key client Dyson Ltd, which make up about 80% of its current revenue, coupled with better productivity and economies of scale.

To celebrate VS Industry’s strong financial year ended July 31, 2007 (FY07), a final 12.5 sen tax-exempt dividend was declared.

Coupled with the 10 sen (tax-exempt) paid for the first nine months of FY07, a total dividend of 22.5 sen was paid in FY07, compared with 10.5 sen in FY06.

The brokerage, which has a buy call on the stock, expects contributions from its coal-mining venture in Indonesia next year.

VS : [Stock Watch] [News]

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