Monday, 1 August 2016VS Industry wins RM100m job to make water filters
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Firm has sufficient capacity to support NEP’s expansion plan
PETALING JAYA: Electronic products maker, VS Industry Bhd, has secured a RM100mil contract to manufacture water filters for NEP Holdings (M) Bhd, a company in which it is buying a 20% stake for RM60mil cash.
The contract to manufacture the Diamond branded water filtration system is for 12 months.
“We are coming in to support NEP’s growth,” VS Industry managing director Datuk SY Gan said in an email interview with StarBiz.
The group, which manufacturers vacuum cleaners for Dyson, has sufficient manufacturing capacity in Malaysia, Indonesia and China to support NEP’s expansion plan into the new market.
“NEP has existing suppliers who are in Taiwan and South Korea, but are not able to cope with the growth of NEP. So this is where we come in,” he said.
Research firm UOB KayHian said that VS Industry’s manufacturing business in China will benefit from the tie up with NEP.
“VS Industry’s operations in China via its 43.9%-owned VS International Group will benefit from a new stream of manufacturing revenue, approximately RM100mil per annum,” it said.
NEP had entered into an agreement Haier Group’s subsidiary RRS.Com in China to distribute water purifier systems.
Last week, VS Industry announced that it is buying a 20% stake in NEP Holdings for RM60mil cash.
VS Industry, in a filing with Bursa Malaysia last week, said that NEP has given a minimum profit guarantee of RM40mil for the financial year ending June 30, 2017 (FY17).
Based on the profit guarantee, VS Industry said that the deal is valued at price-earnings ratio (PE) of 7.5 times or RM300mil.
Gan said that the the valuation is considered attractive as NEP has high net profit margin of 15.7% in FY16.
He noted that according to independent valuation report conducted by FHMH Corporate Advisory, the comparable consumer products companies listed on Bursa Malaysia are trading between PE of 13 times and 32 times.
“FHCA also values NEP at fair value of between RM358mil and RM477mil,” he said.
Meanwhile, Gan said that aside from growing VS Industry’s revenue by being an original equipment manufacturer (OEM) for NEP, he reckoned the latter could also tap on VS Industry’s expertise as a Original Design Manufacturer to help develop new products and expand NEP’s offering.
He said as for now VS Industry do not have a plan to increase its stake in NEP and would be focusing on the group partnership with NEP.
“We are happy with the 20%-stake in NEP, It is a large enough stake for us to do equity accounting on NEP’s earnings,” he said.
In terms of water filtration market in Malaysia, Gan said that Diamond is the market leader with about 30% of market share.
“Diamond also has significant market presence in countries such as Hong Kong and Singapore where it commands 20%-30% market share in each location,” he added.
For the first nine-month of its financial year ending Jul 31, 2016, VS Industry’s net profit soared 33.7% to RM107mil on the back of a 14.3% jump in revenue.