WHILE electronics manufacturing services (EMS) provider VS Industry Bhd might not be spared from the weakening consumer demand, its main customers’ order re-channelling is expected to make up for the shortfall.
On this note, UOB Kay Hian Research is of the view that the worst is likely behind VS Industry with the much-needed drivers in place to fuel its growth.
This is after the company recorded two consecutive quarters of earnings disappointment (on supply chain disruption and manpower shortages) which saw its share price plummeting 40% from its all-time-high of RM1.67 (in September 2021) alongside concerns of its labour practices and broad-based sell-down.
“Note that the biggest hindrance (manpower shortages) has now been largely resolved with the group on-boarding 2,000 workers out of 3,700,” observed analyst Desmond Chong in a company update following a recent plant visit.
“The remaining workers will come in by end-3Q 2022. In a blue-sky scenario, the additional 3,700 workers could pave way for an additional 40% capacity from its 2021 base.”
Moving forward, UOB Kay Hian Research has reiterated its “buy’ rating on VS Industry with an unchanged sum-of-parts (SOP)-based target price of RM1.40 after assuming full warrants conversion that resulted in an enlarged share price alongside cash per share from conversion of warrants.
“VS is now back to its high-growth cycle again, offering net profit growth of 47% in FY7/2023 after its gestation period in FY7/2022, notwithstanding its new meaningful contracts pipeline,” projected the research house.
Meanwhile, a cautious Maybank IB Research retained its “neutral” call on VS Industry with an unchanged target price of RM1.07 given the mixed outlook.
“While VS is confident that the strong growth from Customer X will be able to cushion any slowdown from the other customers, we are cautious that this could come at a lower margin (due to different products assembled) and be negatively impacted by inflationary pressures,” opined analyst Loh Yan Jin.
“Lower sales from other customers might also lead to lower economies of scale as production lines are not able to be shared among different customers.”
At 2.47 pm, VS Industry was up 5 sen or 4.95% to RM1.06 with 8.7 million shares traded, thus valuing the company at RM4.07 bil. – Aug 17, 2022
