VSI prospects still bright despite suspension of Keurig models
KUALA LUMPUR: VS Industry Bhd’s (VSI) prospects remain bright despite the discontinuation of two Keurig models, the research arm of AmInvestment Bank Bhd (AmInvestment) said.
Of note, VSI’s second quarter of the financial year 2018 (2QFY18) core net profit (CNP) came below expectations at RM38 million, representing a year-on-year (y-o-y) growth of 21 per cent, but a 13 per cent quarter-on-quarter (q-o-q) decline.
“We believe the q-o-q decline in earnings stemmed from the discontinuation of two Keurig models a few months ago and initial operational inefficiencies for assembly lines that commissioned in October to November 2017.
“In addition, 2Q and 3Q are traditionally low seasons for Keurig,” AmInvestment said.
“Earnings are expected to pick up in second half of FY18 (2HFY18) as utilisation of the new assembly lines improves,” the research team opined.
Moving forward, it noted that VSI plans to automate 30 per cent of its manufacturing processes in Malaysia.
“For a start, the group is installing more than 20 units of robotic equipment that facilitate the plastic injection and spraying processes.
“(The) management has indicated that one unit is expected to save two to three workers, who are being paid circa RM3,000 per month.
“Assuming a 10 per cent depreciation rate, we estimate that 25 units of the equipment can bring about net savings of up to RM2.5 million per year,” the research team projected.
On a y-o-y basis, AmInvestment noted that VSI’s quarterly earnings expanded on the back of a 46 per cent surge in revenue, mainly due to higher box-build orders from its main customer.
“In addition, the China segment turned into the black from the previous quarter and its 2QFY18 earnings grew 15 per cent y-o-y on higher air purifiers and air-con components,” it added.
All in, the research team maintained its ‘buy’ call on the stock.