VS Industry hits limit-down
Drop due to results that came in below analysts’ forecasts
JAYA: VS Industry Bhd’s shares hit limit-down and was suspended from short-selling trade yesterday.
The technology-based company’s shares immediately dropped when trading started yesterday souring the mood for the rest of the other companies operating in the same tech industry space.
VS plunged almost 30% or 35 sen to 82 sen with 21.48 million shares changing hands.
The drastic fall in its share price was in response to its first-quarter financial results released on Friday which came in below most analysts’ expectations.
Commenting on its quarterly profit, Maybank Investment Bank Research (MIBR) said in its report that VS’ first quarter for the financial year 2019 (FY19) core earnings of RM45mil came in short of its expectation at 22% of consensus FY19’s forecasts.
MIBR noted that despite its Malaysian operations which outperformed, VS’ profit had been weighed down by unexpected losses in its Indonesian operations and the larger-than-expected loss in China that included a one-off loss on disposal of RM5.4mil.
The research house had lowered its 12-month target price on VS to 82 sen from a previous target price of RM1.95.
The report that was titled “Winter is coming” advised investors to brace for difficult times ahead for VS while downgrading the stock to a “sell” from a “buy” before.
“The bigger concern lies in the second half of FY19 whereby VS has received a decline in order flow from a key customer in Malaysia. Uncertainties beyond the first half prompt our FY19-FY21 cut in net profit forecasts by 42%-58%,” MIBR said.
“Our target price is lowered to 82 sen, having rolled forward our valuations to calendar year 2020 (CY20) on a lower price to earnings ratio (PER) peg of 13.5 times (from 16 times CY19 PER) which represents a 20% discount to our average peg of 17 times for tech stocks within our coverage,” it added.
Moving forward, the research house noted that volatility in volume loading is not uncommon in the electronic vices space.
It said that when the company was faced with a similar situation back in FY14, VS weathered through with customer diversification.
“Similarly, we believe that VS will also accelerate its diversification plans in Malaysia, with aid from trade diversions from China. While we are confident in VS’ capabilities to secure new customers from its ongoing discussions, we believe that this will only materialise in FY20 where we have imputed job wins,” it said.
In a separate report, AMBank Research said VS was currently in talks with more than five prospective multinational-corporation types of customers to secure new orders to fill up the excess capacity. manufacturing