VS Industry’s HK-listed associate issues profit warning

One of VS Industry's factories in Johor

KUALA LUMPUR: VS Industry Bhd’s Hong Kong-listed associate company VS International Group Ltd (VSIG) issued a profit warning notice on Friday on its performance for the financial year ended July 31, 2016 (FY16).

The electronics manufacturing services firm told Bursa Malaysia that 43.7%-owned VSIG’s management, in its preliminary assessment, expected the company to post “a substantial inccrease in its loss” in FY16 compared with the preceding year mainly due to a provision for impairment.

The provision is related to the deposits paid for last year’s proposed acquisition of a 20% stake in a solar power plant in the Inner Mongolia. 

VS Industry said the agreement had since lapsed following non-fulfillment of certain conditions, and VSIG had been in discussion with the vendor for a refund on the deposits paid amounting to HK$42.5mil (RM22.5mil).

Based on VS Industry’s effective stake of 43.7% in VSIG, the potential impact of impairment to the VS group’s earnings is estimated at RM9.8mil. (VS Industry earned RM106.98mil for the nine-month financial period ended April 30, 2016, up 34% from the preceding corresponding period.)  

VS Industry said VSIG had on Aug 31 entered into a settlement agreement with the vendor and other relevant parties for the refund of the deposits together with 5% interest per annum thereon by Nov 30, 2016.

“Notwithstanding the settlement agreement, VSIG has decided to make provision for impairment for the deposits to reflect its prudent and conservative approach in assessing the collectability of the deposits,” it added.

According to VS Industry, the profit warning does not have any material impact on the net assets and gearings of the VS group. However, the potential adverse impact on the group’s earnings would be 0.85 sen per share for the fourth quarter ended July 31, 2016, it noted.