Maybank IB Research expects VSI to post stronger results in the coming quarters.
PETALING JAYA: Analysts generally remain cautious about VS Industry Bhd
’s (VSI) outlook due to macroeconomic uncertainty amid high interest rates.
According to Hong Leong Investment Bank Research (HLIB Research), the tough economic environment continues to put a strain on the group’s operational expenditures with increases in labour, utilities and financing costs.
The research house said, “VSI will keep exercising caution and maintain a lean and effective operating environment” in order to lessen the impact of the cost increases,
Meanwhile, Maybank Investment Bank Research (Maybank IB Research) said the cautious view on the group’s outlook is due to the uncertainty about demand for consumer electronics, contingent on macro developments.
On a positive note, the research house said there is potential for increased volume and new client acquisitions. However, the negative risks include the company’s customers’ losing wallet share and demand recovering more slowly than anticipated for VSI-assembled products.
Maybank IB Research also expects to see stronger results for the engineering manufacturing services (EMS) provider in the coming quarters.
“We maintain our forecasts, expecting improved customer orders with recovering end-consumer demand and increased contributions from the recently acquired 11% stake in HT Press Work Sdn Bhd (HTPW),” it added.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) said: “As new releases come in, the group will experience a good turn.”
Given the pressures of inflation and softening consumer spending, however, the research house noted a majority of brand owners have postponed the launching of their products in 2023.
“Moving forward, we believe the company’s margins will still be challenged, especially from increased labour and utilities costs, coupled with the under-utilisation of facilities with cooling demand for consumer-electric products,” HLIB Research noted.
VSI reported a net profit of RM48.98mil in the first quarter of financial year 2024 (1Q24) on the back of RM1.15bil in revenue.
According to HLIB Research, the slowdown in VSI’s topline was a result of lower sales from China (27%), Indonesia (8%), and Malaysia (4%).
Stronger sales from Singapore, which contributed 15%, was not enough to offset the declines.
The research house said the operating climate in China remained difficult in the absence of major orders.
HLIB Research reduced its FY24 and FY25 forecasts for the company by 17% and 12%, respectively, to account for the lower revenue and margin challenges.
The research house maintained a “hold” call on VSI with a lower target price (TP) of 82 sen based on an unchanged 16 times price-earnings multiple of FY24 earnings per share.
Maybank IB Research also has a “hold” call on the stock with a TP of 83 sen.
