Brighter prospects ahead for VSI

KUCHING: VS Industry Bhd’s ( VSI) prospects are expected to be brighter as its new orders are set to offset decline in others, analysts observed.

AllianceDBS Research Sdn Bhd (AllianceDBS Research) pointed out that VSI has commenced production line for its new customer US-based home appliance company Bissell International Trading Co BV in August and delivery will start in October.

Its production line has been operating smoothly so far, with no major hiccups. To recap, VSI was awarded a manufacturing contract by Bissell in March 2019 to manufacture homecare products bearing the BisselI brand on a box-build basis.

VSI is also Bissell’s first supplier in Southeast Asia. Bissell is estimated to contribute RM450 million to RM875 million to VSI’s top line for FY20 and FY21.

AllianceDBS Research also highlighted that VSI is in advanced negotiations with four customers and

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optimistic of winning more jobs in CY19. Earnings contribution from these potential wins could filter through from FY20 onwards.

“We believe that VSI stands a good chance of securing more customers going forward, particularly companies moving out from China to other regions due to several factors,” it said.

These factors include the ongoing US- China trade war and relatively high cost of manufacturing in China, VSI’s new factory in Senai, Johor, with built-up area of about 180,000 sq ft for new orders could accelerate the relocation process, and VSI’s strong track record in manufacturing and execution capabilities.

“Another positive note is that the group recently secured a new client for box-built assembly, with annual revenue contribution of about RM100 million from FY20 onwards,” it added.

Aside from that, it noted that VSI’s operations in China will continue to register losses due to the significant decline in orders, mainly caused by the ongoing US- China trade war.

“Nevertheless, we anticipate its losses in China to narrow going forward. VSI has engaged in cost- cutting and downsizing exercises since the second half of 2018 (2H18).

“In our earnings model, we estimate its China operations to register loss before tax (LBT) of RM20 million and RM10 million for FY20 and FY21 (compared with core LBT of RM56 million in FY19),” it added.

Meanwhile, AmInvestment Bank Bhd’s research team (AmInvestment) noted that VSI has some new customers for the Malaysian segment.

“In July 2019, the group shared that it had secured PCBA orders from a new customer which are expected to contribute RM200mil revenue in FY20F. This partially mitigates the anticipated decline in overall PCBA orders as some of VSI’s customers head towards self-sufficiency by producing PCBA in-house.” THE Kuala Lumpur Tin Market (KLTM) eased US$50 to close at US$16,300 a tonne yesterday, tracking the downtrend in the tin price on the London Metal Exchange (LME).

The LME tin price lost US$55 to US$16,470 a tonne.

The KLTM received buying support from Chinese, South Korean, Japanese, Taiwanese and European buyers.

Bids and offers were both at 22 tonnes, while turnover eased to 22 tonnes from 23 tonnes Thursday.

The price differential between the KLTM and LME was at a discount of US$170 a tonne today from a discount of US$175 a tonne previous day.