PP 7767/09/2010(025354)

Malaysia Corporate Highlights

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

R e su l ts N o t e
30 June 2010
MARKET DATELINE

VS Industry Share Price

Fair Value
:
:
RM1.20
RM1.87
Improving Outlook Recom : Outperform
(Upgraded)

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
2009 724.8 5.2 2.9 6.6 -83.8 18.1 - 0.8 0.4 19.4 1.4
2010f 789.8 22.7 12.7 12.7 92.2 9.4 n.a. 0.7 0.2 6.2 4.1
2011f 872.5 44.4 24.9 24.9 106.4 4.8 n.a. 0.7 0.1 11.5 8.7
2012f 972.2 55.4 31.0 31.0 24.6 3.9 n.a. 0.6 net cash 13.1 10.3
# Excludes exceptional items
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ Within expectations. VSI’s 3QFY07/10 net profit of RM6.5m (vs. a net Above
loss of RM4.2m in 3Q09) brought 9MFY10 net profit to RM15.0m √ In Line n.a.
(+127.4% yoy), accounting for 66% of our full-year estimate. We consider Below

this to be in line with our numbers on expectations that 4Q would remain Issued Capital (m shares) 179.7
strong as demand continues to improve. As expected, no dividend was Market Cap (RMm) 215.6
declared during the quarter. Daily Trading Vol (m shs) 0.05
52wk Price Range (RM) 1.16-1.37
♦ 3Q revenue grew 6.4% qoq. QoQ, revenue grew 6.4% as orders Major Shareholders: (%)
continued to recover. 3Q10 EBIT margin expanded by 1.3%-pts qoq Beh K.L & Gan C.C 31.0

largely due to operating leverage effect as a result of the higher utilisation Gan S.Y & Ling S.M 7.9

rate. Coupled with lower associate losses (-67.9% qoq), partly offset by a FYE Jul FY10 FY11 FY12
higher effective tax rate of 41% (vs. 2Q10 effective tax rate of 37.1%), EPS chg (%) - - -
net profit grew 46.8% qoq. Var to Cons (%) n.a. n.a. n.a.

♦ Outlook. We expect orders in the coming quarter to pick up further, in

PE Band Chart

tandem with improving economic conditions. Coupled with the increase in

PER = 10x
sales to Dyson and introduction of new products, these should generally be PER = 7x
positive for the company moving forward. Management has also said that PER = 4x

sales orders are improving, albeit gradually. In addition, the company

should benefit from the recent protests by workers in China demanding for
higher wages as this would put pressure on staff cost for the other EMS
manufacturers there, giving VSI’s domestic operations an edge over peers.

Relative Performance To FBM KLCI

♦ Risks. Key risk is the deterioration in the global macroeconomic
environment, which would lead to a sharper-than-expected slowdown in
consumer spending and demand for consumer electronics.
FBM KLCI
♦ Forecasts. We are keeping our FY10-12 earnings forecasts unchanged for
now. As management intends to keep VSI’s dividend policy to 30%, we
VS Industry
have lowered our FY10 gross DPS projections to 5 sen (from 8 sen
previously) but maintained our FY11 and FY12 gross DPS projections of
10.7 sen and 12.7 sen respectively.

♦ Investment case. We have rolled-forward our valuation year to FY11

(from CY10 previously) and as a result, our fair value has been raised to David Chong, CFA
RM1.87 (from RM1.33) based on unchanged target PER of 7.5x. Given the (603) 92802179
potential upside of 55.8% to our fair value, we have upgraded our david.chong.@rhb.com.my
recommendation to Outperform from Market Perform.

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

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 30 June 2010

Table 2 : Results Review

QoQ YoY YoY
FYE Jul (RMm) 3Q09 2Q10 3Q10 9M09 9M10 Comments
(%) (%) (%)
Revenue 170.8 181.1 192.7 6.4 12.8 553.2 550.7 (0.5) Stronger yoy and qoq largely due to the
slow recovery in orders.
EBIT 2.9 9.5 12.6 33.1 >100 25.1 32.6 29.8
Net interest expense (1.7) (1.3) (1.5) 11.6 (11.2) (5.4) (4.5) (16.4) Net gearing was 0.33x as at end-3Q10
(2Q10: 0.33x; 3Q09:0.37x)
Associates (5.0) (1.1) (0.3) 67.9 93.1 (7.8) (2.8) 64.5 Losses mainly coming from VSI’s
associates in China.
Pre-tax profit (3.8) 7.1 10.8 52.3 >100 11.9 25.3 >100

Tax (0.2) (2.6) (4.4) 68.7 >100 (6.3) (10.2) 61.6

Minority interest (0.2) (0.0) 0.2 >100 >100 1.0 (0.1) >100
Net profit (4.2) 4.4 6.5 46.8 >100 6.6 15.0 >100

Margin (%)
EBIT 1.7 5.2 6.5 4.5 5.9 QoQ margin expansion due to operating
leverage effect as a result of higher
utilisation rate during the quarter.
Pre-tax (2.2) 3.9 5.6 2.2 4.6
Effective tax rate (6.1) 37.1 41.0 53.2 40.5 Above statutory tax rate as certain
expenses were non-deductible for tax
purposes.
Net profit margin (2.5) 2.4 3.4 1.2 2.7
Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Jul (RMm) FY09a FY10f FY11f FY12f FYE Jul FY10F FY11F FY12F

Turnover 724.8 789.8 872.5 972.2 Vacuum cleaner:

Turnover growth (%) (3.6) 9.0 10.5 11.4 - sales volume growth (%) 9.0 13.0 14.0
- % chg in ASP 0.0 0.0 0.0

EBITDA 75.3 72.6 89.3 105.0

EBITDA margin (%) 10.4 9.2 10.2 10.8

Depreciation (28.9) (27.4) (28.6) (29.7)

EBIT 46.4 45.2 60.7 75.3

EBIT margin (%) 6.4 5.7 7.0 7.7
Net Interest (6.8) (6.5) (5.8) (5.8)
Associates (16.2) 0.0 5.0 5.0

Pretax Profit 13.0 38.7 59.9 74.5

Tax (8.8) (15.5) (15.0) (18.6)
Minorities 1.0 (0.5) (0.5) (0.5)
Net Profit 5.2 22.7 44.4 55.4
Source: Company data, RHBRI estimates

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.

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 30 June 2010

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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