UOBKH Research said the impact of forex fluctuations would be further mitigated by the growing earnings contribution from customers whose sales are denominated in ringgit.
PETALING JAYA: Electronics manufacturing services provider VS Industry Bhd
is in a favourable position to rake in stronger earnings in the fourth quarter (4Q24) and into financial year 2025 (FY25).
Among some of the growth drivers that would spur its earnings include better operational efficiency, ramp-up from its key United States customers and contribution from its Philippines venture.
UOB-Kay Hian (UOBKH) Research said it expects the company to post a sequentially stronger 4Q24 and could see record-high earnings in FY25.
“Recall that VS Industry reported an overachieving 3Q24 core earnings of RM54.4mil, which is a rise of 442% quarter-on-quarter (q-o-q) and a surge of 104% year-on-year (y-o-y), thanks to the margin enhancement from its value-added services alongside better operational efficiency from the healthy loadings of its key customers.
“We believe such impetus could spill over to its 4Q24 earnings at an expected range of RM59mil to RM63mil (a surge of 9% to 16% q-o-q).
“Looking forward to FY25, healthy ramp-up from key US, pool cleaner and coffee brewer customers on the back of inventory replenishment cycle alongside contribution from its Philippines venture could spearhead growth further,” the research house added.
Furthermore, the unfavourable foreign exchange (forex) movement which could be negated by mitigation measures and strategic product composition is a shot in the arm for VS Industry.
Additionally, the brokerage said the impact of forex fluctuations would be further mitigated by the growing earnings contribution from customers whose sales are denominated in ringgit (on cost pass-through arrangements), which is expected to account for about 45% of the group’s total revenue in FY25.
Based on its FY22 and FY23 currency risk analysis, UOBKH Research said a 10% strengthening of the US dollar to the ringgit would have resulted in earnings fluctuations of 3.9% to 6.7% in those respective years.The group has been employing forward exchange contracts from time to time for hedging purposes and is sheltered with natural hedging through US dollar-denominated purchases.
VS Industry is involved in the manufacturing of plastic parts and components, contract manufacturing, precision mould making, the sub-assembly of electronic and electrical equipment and other secondary processes. It has plants in Malaysia, China, and Indonesia.
