VSI expects new orders to boost earnings

  • Business
  • Wednesday, 02 Jul 2008

PETALING JAYA: Electronic manufacturing services provider VS Industry Bhd (VSI), which reported a 30.4% drop in revenue for the quarter ended Apr 30, expects earnings to pick up for the rest of the year on the back of new orders.

OSK Research in a report said VSI's management said the company would start maiden production for vacuum cleaner manufacturer Dyson’s latest model in September.

“This bodes well for the company going forward as based on our estimate, the first batch of this model would increase VSI’s earnings by about RM3mil,” the report said.

Apart from the recurring assembly contracts, VSI had also been awarded new higher value-added printed circuit board (PCB) contracts by Dyson given the former's ability to maintain quality standards, it added.

VSI was also confident that electrical component manufacturer Valeo could potentially emerge as its major customer as the parties recently inked four contracts.

“VSI is also in negotiations with Philips for the assembly of more consumer appliances,” OSK Research said.

The research house projected the company’s moulding and plastic finishing as well as its PCB assembly segments to grow by 20% and 25% respectively driven by these additional contracts.

As for its mining operations, VSI, which has on-going supply contracts to its customers in Indonesia, was in talks with a new customer from the Philippines for the supply of coal and negotiations were expected to be concluded soon, it said.

OSK Research added that the recent energy price hikes would have minimal impact on VSI’s margins and earnings, given that its overhead costs and fuel price only accounted for less than 1.7% of its total cost of sales and 2% of its total group expenses respectively.

VSI reported a net profit of RM9.8mil on revenue of RM201.2mil for its third quarter ended April 30 compared with RM17.7mil RM289.1mil respectively in the previous corresponding period.

Kenanga Research in its report noted that lower revenue was due to key customers reducing production owing to prudent inventory management and a general weaker outlook for sales.

OSK Research maintains its “neutral” rating on the company with a target price of RM2.29 while Kenanga Research retains its “buy” call with a target price of RM2.24.

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