KUALA LUMPUR: VS Industry Bhd 's rally may still have legs given the favourable shift in growth dynamics and a more balance earnings profile, says RHB Research.

       On the back of upbeat FY21 earnings, the research house expects near-term earnings growth as the group returns to full workforce capacity.

       "Over 90% of VSI's workers have been fully vaccinated and it should be able to resume full workforce capacity by October.

       "This will come in handy for VSI to commence more new production lines and take on the seasonal demand that kicks in towards the year-end," it said.

       It added that VS Industry's earnings base will become more diversified moving forward, which will set it apart from peers that depend relatively more on the organic growth of existing customers.

       The research house projects 39% earnings growth in FY22, indicating another record year, supported by the ramp-up in new production lines progressively from the two new customers secured earlier in 2020.

       Post-results, it also raised FY23-23 forecast earnings by 3% and introduced FY24 projections, which imply 8% growth.

       RHB increased its ascribed FY22 price-earnings to 23 times from 19 times previously to arrive at a new target price of RM2.01.

       The new valuation is at plus-three standard deviation over the stock's five-year mean and reflects a 20% premium to its close peer SKP Resources. It said this was jutified by VS Industry's relatively larger market capitalisation and higher trading liquidity.

       In FY21, VS Industry's core net profit jumped 120% year-on-year to RM270mil, representing 99% and 108% of RHB's and consensus full-year forecasts respectively.

       RHB considered the results above its expectation as it had not taken into account the lockdown restrictions.