• 1Q21 revenue and PATMI rose 2% and 8% YoY respectively. Profit growth is below our forecast of +17%. Net cash was a record S$989mn.
• We had expected a stronger rebound from last year’s low base caused by pandemic disruptions.
• Order pipeline is strong but fulfilment is affected by short supply of parts and components.
• Maintain NEUTRAL. Our target price is unchanged at 16x FY21e P/E, its 5-year average P/E. We are leaving forecasts intact, optimistic that order momentum will build up in the rest of the year, notably for life science, medtech devices and consumer wellness.

The Positives

+ Stellar balance sheet, record net cash. Net cash as at end-March 2021 was S$989mn. A record for VMS. Operating cash flow built up from higher earnings and stable working capital. We expect higher dividends from its large cash hoard and improving operating environment.

+ Margins expanded despite sluggish sales growth. 1Q21 PBT margin of 10.9% was an improvement over 1Q20’s 10.4% and above 2015-16 margins of 8% when revenue was at similar levels. VMS’ shift to more sophisticated and leading-edge products was a major contributing factor, in our opinion.

The Negative

– Revenue growth sluggish. 1Q21 revenue only expanded 2% YoY. This was paltry considering 1Q20 revenue had collapsed 27.5% YoY under severe disruptions of supply chains in China and Malaysia. VMS attributed this year’s weakness to shortages of parts and components.

Outlook

Company has guided for: 1) QoQ improvement in 2Q21 earnings; a 2) a stronger 1H21 YoY; 3) broad-based strength across domains; 4) strength in leading-edge healthcare products; and 5) an impending launch of new semiconductor and networking products.

Maintain NEUTRAL with unchanged TP of S$19.20

Our forecasts are unchanged as we expect stronger revenue momentum in the coming quarters.

#Note – There was no results briefing or detailed financials for 1Q21. Only an executive summary and general comments were furnished.