WITH easing of foreign labour contagion risks, VS Industry Bhd’s below par 1Q FY7/2022 financial performance is justified on the back of subdued operational efficiencies emanating from imposition of the nationwide total lockdown between June 1 and Aug 31.
Essentially, orders from key customers have remained robust and the ramp-up of new production lines should progress more swimmingly going forward when the constraints on labour and components are alleviated, according to RHB Research.
“Meanwhile, the continuous capacity expansion has signified the management’s optimism on its future contract flows with the company actively engaging with more prospective customers,” opined analyst Soong Wei Siang in a results review.
“On the other hand, we understand that VS Industry has identified areas of improvement and the relevant action plans in order to further upgrade its labour standards and this should lift sentiment and allay the concern on the migrant workers’ issue.”
According to RHB Research, VS Industry’s 1Q FY7/2022 earnings came in below expectations as its core net profit of RM39 mil (-41% year-on-year) met only 12-13% of the research house’s and consensus’ estimates.
This stemmed from a myriad of factors including worse-than-expected disruption in component supply and a dip in printed circuit board (PCB) sales.
“Post-results, we trim VS Industry’s FY7/2023F earnings by <15% (while maintaining its “buy” rating) but leave FY7/2023-2024F numbers unchanged,” justified the research house. “Correspondingly, our target price is revised to RM1.85 (from RM2.03 previously) based on unchanged 23 times fully-diluted P/E (price-to-earnings ratio).”
Elsewhere Hong Leong Investment Bank (HLIB) Research also reiterated its “buy” call on VS Industry with a target price of RM1.88 pegged to unchanged PE of 20 times to its CY2022 earnings per share (EPS).
“We like VS Industry given the (i) healthy order outlook brought by the steady demand of consumer electronic products; and (ii) margin expansion from customer diversification efforts,” noted analyst Syifaa’ Mahsuri Ismail.
“As the biggest EMS (electronic manufacturing service) player in Malaysia with a solid track record, we opine that VS Industry is a prime beneficiary from the intensifying trade diversion catalyst.”
Maybank IB Research which also retained its “buy” rating on VS Industry albeit with a lower target price of RM1.73 (from RRM1.86 previously) does not foresee material risk from foreign labour malpractices at this juncture.
“In our view, the joint statement (with migrant workers’ right specialist Andy Hall) was encouraging, and included his (Hall’s) commitment not to launch any further public campaigns against specific companies that were open to constructive dialogue on migrant worker rights,” reckoned analyst Anand Pathmakanthan.
“We also note that VS Industry is RBA (Responsible Business Alliance)-compliant and is subject to annual audits from both the RBA as well as its key customers whereby it has thus far performed satisfactorily in both.”
At 9.21am, VS Industry was down 1 sen or 0.77% to RM1.29 with 2.25 million shares traded, thus valuing the company at RM4.94 bil. – Dec 17, 2021
