PETALING JAYA: VS Industry Bhd
is in talks with several multinational corporations (MNCs) to potentially secure them as new clients.
According to UOB Kay Hian (UOBKH) Research, the integrated electronics manufacturing services provider has been approached by new MNC customers, with discussions still in the infancy stage.
“We understand that VS Industry is still being approached by new MNC customers, with discussions of prospective contracts at the early stages of evaluation,” the brokerage said in its report.
“Based on the recent customer acquisition trend, we believe any prospective contracts could carry better margins,” it added.
Assuming a RM500mil contract being secured with full contribution in the financial year ending July 31, 2024 (FY24) on a net margin of 5.7%, the earnings accretion would be 9%, UOBKH Research said.
The brokerage, nevertheless, said it was not assuming any new customer wins for VS Industry for now.
It maintained a “buy” call on VS Industry, with an unchanged target price of RM1.10. This is based on 15 times the estimated earnings of the company for FY24.
“VS Industry is now back to its high-growth cycle again, offering a two-year net profit compounded annual growth rate of 18% from FY22-FY24, notwithstanding the new meaningful contract pipeline for the company,” UOBKH Research said.
VS Industry reported a lower net profit of RM26.78mil for the third quarter ended April 30, 2023, compared with RM51.29mil in the previous corresponding period, while revenue rose to RM996.78mil from RM927.59mil.
For the nine-month period ended April 30, 2023, the company’s net profit stood at RM117.84mil compared with RM135.17mil a year earlier, while revenue grew to RM3.4bil from RM2.9bil.
UOBKH Research said despite the lacklustre results, there could be bright spots for VS Industry stemming from order rechannelling that would cushion the general weakness; a relief in systemic disruption, that is, labour shortage and supply chain disruption, and undemanding valuation with de-rating catalysts being sufficiently priced in.
“VS Industry is benefiting from the fallout of its peer on the common customer’s business engagement, where it has secured three various segments of new models. This would rake in at least RM500mil in revenue, with earnings potential of more than RM25mil (better margins) to cushion the demand softness from other key customers,” it said.
Meanwhile, Maybank Investment Bank Research recommended a “hold” call on VS Industry, with an unchanged target price of 80 sen.
“We remain cautious on VS Industry’s outlook as we expect demand for consumer electronic products to remain muted on prolonged global economic challenges,” the brokerage explained.
“Until production volume and factory utilisation pick up, we expect group margin to remain under pressure due to inefficient operating leverage,” it added.
Similarly, Hong Leong Investment Bank Research maintained a “hold” call on VS Industry, with an unchanged target price of 88 sen, citing the volatile market climate and cautious demand.
“We remain wary as demand from major brand owners could still be subdued, given the recessionary fears and subdued consumer sentiment,” it said.
