VS Industry Transition To Recovery Mode

E&E player, VS Industry 1Q FY23 results came in within expectations says Maybank IB, the results were at 23%/24% of consensus full-year forecasts. Maybank maintains its earnings estimates and TP of MYR1.15.

Accordingly, 1Q core net profits soared by 82% YoY to RM64m, after excluding a positive one-off amounting to RM4m, which consists of some forex losses and gains from PPE disposal. The earnings surge was mainly due to operational recovery from labour/component shortages and higher sales orders from existing customers, including the new models win from Customer X, which only commenced production in 4QFY22. QoQ, VSI’s core net profit was down by 22%, largely dragged by higher interest expense and tax expenses.

Geographically, sales have improved significantly for its Malaysia and Indonesia segment, by +62% YoY and +33% YoY respectively, thanks to higher orders/production. The reverse was observed in the Singapore segment (a new disclosure from the current quarter, acting as a marketing arm for the Malaysia operations), which saw its sales falling -29% YoY. Likewise, sales from China have shrunk significantly by -59% YoY, believed to be largely due to the China lockdown and business consolidation. On a positive note, losses in China have narrowed, thanks to the consolidation effort to streamline the operations.

Maybank believes VSI has finally cruised through the pandemic-led disruptions (ie. labour and raw material shortages), and operations are slowly recovering with the arrival of foreign labour and normalising the supply chain. While the house remains cautious about headwinds such as inflationary pressure and consumer spending slowdown, which could drag VSI’s future earnings, the bank believes these have been largely reflected in the conservative forecasts at this juncture.

Call to BUY on better visibility in operational recovery.

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