WHILE electronic manufacturing service provider (EMS) VS Industry Bhd has on-boarded its second batch of foreign workers (circa 1,000 headcount) as planned yesterday (June 30) – a move that shall ease its manpower bottleneck – the group is now facing downside from growing recessionary concerns.
Even as another three more batches are expected to arrive in the coming months, Maybank IB Research is wary of the increasingly challenging operating environment that the Johor-based company is entering into.
“VS Industry expects demand for the premium consumer electronic products it assembles to be more resilient vis-a-vis general electronic products,” analyst Loh Yan Jin pointed out in a company update following an analyst briefing.
“We opine that VS Industry’s recovery process from its current operational disruptions could be bumpy as rising costs and inflationary pressures are likely to affect its near-term margins and dampen consumer demand for the premium consumer electronic products it assembles respectively.”
Against such backdrop, Maybank IB Research reiterated its “hold” rating on VS Industry with a target price of RM1.07, preferring Aurelius Technologies Bhd instead as its top EMS pick (”buy”; target price: RM2.03).
“The potential upside for VS Industry could stem from securing new customers as it benefits from MNC’s (multinational) supply chain diversification/manufacturing base re-location strategies, stronger-than-expected sales growth from wallet shares increase in-line with market shares growth, and better-than-expected margins from improved productivity/efficiencies,” suggested the research house.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said bright prospect remains intact for VS Industry with several discussions taking place with new customers to contribute positively to future earnings.
“With the international borders re-opening, we opine the discussions will be more productive with several potential clients already conveying interest to visit the group’s factories,” analyst Syifaa’ Mahsuri Ismail pointed out.
“Additionally, the management shared that some of the existing customer are inquiring on moving production to VS Industry Indonesia as part of diversifying strategy. However, it warned of possible downward order revision towards the tail end of 2022 for a US customer and coffee brewer (manufacturer) on the back of recessionary fears.”
All-in-all, HLIB Research maintained its “buy” rating on VS Industry with an unchanged target price of RM1.14 based on 16 times PE (price-to-earnings ratio) pegged to FY7/2023 EPS (earnings per share).
“As the biggest EMS player in Malaysia with solid track record, we opine that VSI would be able to weather through the gloomy clouds while simultaneously scour for opportunities from the trade diversion,” added the research house.
At 10.57am, VS Industry was unchanged at 99.5 en with 261,200 shares traded, thus valuing the company at RM3.82 bil. – July 1, 2022
