Strong earnings rebound expected in Q2 for VS Industry

KUALA LUMPUR: Maybank IB Research expects a strong earnings rebound quarter-in-quarter for VS Industry Bhd, driven by strong volume loading in China and much larger boxbuild orders at its Malaysia operations.

This follows the company’s Q1 results for FY18 which saw core earnings coming in at RM47mil, which met only 18% of its forecasts, dragged by higher-than-expected raw material prices at the China operations.

The research house said on Friday that it lowered its FY18-FY20 earnings forecast by 7% each, to account for lower margins at its China operations and incorporated a revised USD/MYR of 4.10-4.15 (from 4.30). 

It maintained its Buy call on the counter.

“We continue to like VS Industry for its ability to win contracts for new products notwithstanding potential manufacturing localisation in markets where its clients are experiencing phenomenal demand growth,” it said in a note.

The research house noted that VS Industry had rebounded strongly in Q2’FY17, recording a pre-tax profit of RM19mil against a pre-tax loss of RM5mil in Q1’FY17, on the back of a sizeable delivery of air purifiers to its client. 

“We expect VS Industry to see a similar trend in Q2’FY18, with year-on-year growth potential too, taking cue from its Q1’FY18 large pre-production expenses associated to new product testing.

“Additionally, we expect the group to announce contract wins as highlighted during its recently concluded rights issue,” it said.