VSI records soft FY18, but stronger prospects ahead
KUCHING: VS Industry Bhd (VSI) recorded a softer financial year 2018 (FY18) core profit but analysts expect stronger prospects ahead for the company, driven by steady orders from its key clients and additional assembly lines.
In a report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted that VSI’s FY18 core profit fell eight per cent year-on-year (y-o-y) despite VSI’s higher revenue.
This comes as margins were impacted by higher material and labour costs, initial set-up and testing costs for its new assembly lines incurred in the first half of FY18 (1HFY18).
It also saw reduced contribution from Keurig due to operational efficiencies from the discontinuation of two of its models for its Malaysian operations.
However, it pointed out that VSI’s FY18 revenue soared 25 per cent mainly due to higher contribution from its Malaysia and Indonesia segments, driven by higher sales orders from its key MNC customers offsetting the lower contribution from Keurig in Malaysia, and a change in billing for a customer from a consignment basis to turnkey manufacturing basis in Indonesia.
For its Indonesia segment, the research team said, VSI recorded an improved profit before tax (PBT) of RM3 million in FY18 compared with loss before tax (LBT) of RM5 million in FY17 due to the absence of a revaluation deficit of RM12 million last year, following the revaluation exercise of its properties.
It also noted that its China segment recorded an LBT of RM19 million, mainly from loss on disposal of its subsidiary in Qingdao and as margins continue to be affected by intense competition, reducing the ability to past on higher material and labour costs.
On its prospects, AmInvestment said: “Moving forward, we expect earnings to be sustained by stable orders from its key customers as additional assembly lines are expected to come onstream in FY19.”
All in, the research team maintained its ‘buy’ call on the stock.
It said: “We continue to like VSI due to its association with its key customer which is planning a slate of new product launches over the next few years, its ability to offer turnkey electronic manufacturing services solutions being a vertically- integrated player, and its handsome growth prospects, underpinned by sustainable capacity expansions and sturdy box-build orders from its key customer.”