Analysts positive on long-term prospects of VS Industry

KUCHING: Analysts at MIDF Amanah Investment Bank Bhd ( MIDF Research) are positive on the long-term outlook of VS Indsutry Bhd ( VS Industry).

Following a visit to the company’s manufacturing plant in China, the research firm was convinced about VS Industry’s business growth due to potential more orders and improved earnings visibility.

MIDF Research believed VS Industry’s operation in China is expected to return to the black due to higher sales volume as well as improving profit margins as a result of higher proportion of high-margin products to be sold although the China unit made a pre-tax loss of RM5 million in the first quarter ended October 2016.

The research firm noted that the pre-tax loss was due to higher raw material costs from the depreciation of the renmimbi against the US dollar as well as lower sales.

Going forward, MIDF Research expects VS Industry’s sales volume to pick up and profit margins to improve as production for a new model of air purifier enters a more mature cycle.

It gathered that the company’s 43 per cent associate, VS International Group ( VSIG) is involved in the designing of the product, manufacturing of the parts, assembling, testing and packaging of the air purifier.

The research firm observed the production of the new model started in November and the company’s manufacturing plant has the capability to produce up to 70,000 units per month at full capacity.

It noted that the new model of air purifier was well-received by end-buyers during the soft launch on Singles’ Day ( November 11) as online orders exceeded 20,000 units within two hours.

The research firm gathered that the warm response was due to the improved functions of the new air purifier.

In the meantime, MIDF Research opined that the market for air purifier in China is huge due to household concerns of the air quality especially in major cities of China.

Thus, it believed the company’s China operations are essential to the group as the unit contributed approximately 20 per cent to the group’s topline.