VS expands capacity to meet rising demand

Several new assembly lines to come on stream in 12 months

PETALING JAYA: Capacity expansion is the key mantra for any company’s sustainable operational growth, and VS Industry Bhd seems to understand the game well.

While it continues to grapple with higher business costs, the integrated electronics manufacturing services player has been ramping up its production capacity in anticipation of new orders.

A spokesperson for VS Industry told StarBiz that the company has added more production floor space and the new capacity is expected to be taken up by its existing key clients and other prospective customers.

“We expect several new assembly lines to come on stream in the next 12 months from some of our key clients,” she said.

The company has acquired a RM28mil new factory, which has the capacity of eight assembly lines. The plant is under renovation and the first assembly line will likely commence operations next month.

Meanwhile, the construction of a RM70mil new facility with a total of 12 assembly lines is slated for completion this month.

In the meantime. the company is on the lookout for potential merger and acquisition opportunities.

“However, nothing is concrete at the moment,” said the spokesperson.

Analysts said VS Industry’s prospective earnings growth relied substantially on how successful the company is in bagging new work orders to utilise its new and upcoming capacities.

“VS Industry is still hoping to be the third supplier for a multinational company to manufacture a consumer product,” UOB Kay Hian Malaysia Research said in a note.

The group’s business model thrives on long-term relationships with its key clients, and its products are manufactured based on the request from the clients.

“Typically, our clients provide us a rolling 12-month production forecast and threemonth confirmed orders. We do not have to sign contracts with fixed sums and durations,” said the spokesperson.

While the company is cautiously optimistic about getting new orders, the market is a little bit more bullish about its prospects.

VS Industry’s share price, which has been on a downtrend since the start of 2018, rebounded last week on a substantially higher volume.

Analysts said sentiment on the stock had turned positive after the company reported a strong quarterly performance in the three months ended July 31.

This was boosted by reports quoting Prime Minister Tun Dr Mahathir Mohamad as saying that British billionaire Sir James Dyson had expressed his intention to bring more investments into Malaysia.

UOB Kay Hian Malaysia Research foresees the new investments to be related to the home appliances segment, adding that “the key customer had already poured in massive investments to build facilities for other segment in its home country”.

As a gauge of analyst sentiment, Bloomberg data showed that five research houses have issued a “buy” call on VS Industry, while two others have recommended a “hold”.

The median target price for the stock is RM1.77.

On its operations in China that saw lower revenue contribution in financial year 2018 (FY18), VS Industry viewed the operating environment in the country as “highly challenging”.