V.S. Industry Bhd’s founder and group chairman, the gregarious Datuk Beh Kim Ling lets our a hearty laugh when complimented on his happy-go-lucky demeanour that is rather obvious the minute one meets him.
But don’t mistake that carefree attitude for a lack of business acumen.
The single largest shareholder in the company with a 22.5% stake, Beh started V.S., a Johor-based original equipment manufacturer (OEM) way back in 1979 and over the years, has helped build the company up to become the largest OEM in the country by sales, chalking up steady growth in its earnings.
More recently, the company’s net profit jumped almost seven-fold to RM26.52mil for the third quarter ended April 30, from RM3.82mil a year ago, supported by higher sales.
“At our company, our biggest asset is human capital,” the 57 year-old Beh tells StarBizWeek in a rare interview.
“We have extremely good team work which has made our research and development (R&D) side which is crucial to our business – very strong.”
However, preserving that human resource quality and getting fresh engineering talent will always be one of the main challenges for the group , Beh says.
Global manufacturing companies come to firms like V.S. which design, produce and test products for them to sell on to end-users.
In V.S.’ case, the company has been in the consumer electronic and electrical product manufacturing services industry for more than 30 years and manufactures products such as coffee machines and vacuum cleaners for customers mainly in the US and Europe. Every product type that it manufactures for its customers is exclusive, according to Beh.
Almost 90% of its sales are transacted in the greenback , which is a boon for the company in the current environment of a strong US dollar.
While the company’s sales used to be dependant on a single largest customer which made up over 80% of its sales , these days, the sales are more evenly spread out.
“If we can maintain the trend of having one customer contributing not more than 30% of our sales, that’s good enough in terms of cutting down on over dependency.
“Currently, our biggest customer, a famous coffee machine company in US, contributes about but not more than 35% to total sales.”
Collectively, V.S. has about 30 customers, with 10 being major ones.
For the financial year ending July 31, 2016 (FY16), Beh says V.S. is hoping for a 10% to 15% growth in terms of sales and net profit.
Up to the nine months to April 30, V.S. made a net profit of RM80mil on sales of RM1.43bil compared with a net profit of RM17.1mil on sales of RM1.18bil for the same period, a year earlier.
Growth should come from repeat orders of current customers as well as fresh orders, he says, as the company banks on the economies of US and Europe continuing to gain strength.
V.S.’ customers typically give estimates about a year ahead, with confirmation coming in approximately three months in advance.
“At the moment , we have confirmed orders of three months worth about RM500mil on average and are discussing with three potential customers for new business,” Beh says.
At its factories located in Senai, Johor as well as in Indonesia and China, production is running at an average of 75%, which leaves 25% of capacity to be filled.
“Once the capacity is taken up, I will build up more, I still have about 15 acres of land in Senai ...,”
V.S.’ sales trend is “steady” and “sustainable”, Beh says partly due to the quality of its products manufactured. “It’s not easy for them (customers) to switch to another OEM after being with us for some time. “
Every year, the company spends about RM30mil to RM40mil to upgrade the machinery at its factories and has scaled down its workforce from over 20,000 some 10 years ago to about 12,000 now as automation made its way into its production process.
Beh points out that the life span of his products is about 1.5 years each, which means it introduces new product models for the same customers on a relatively regular basis.
Orders are contract-based and locked in via agreements for at least a three to five year period, adding on to the element of sustainability in its business.
Besides growing organically, the company is also looking for potential merger and acquisition opportunities.
“We are considering the option of buying overseas-based OEMs which make very specialised products but there’s nothing solid on the table yet.”
V.S. has cash and cash equivalents of RM198mil not taking into account the RM80mil recently raised via a private placement. However, borrowings are higher than the total cash it has, amounting to RM381mil.
“We hope to be in a net-cash position in two to three years after paring down our borrowings, ” he says but does not disclose an exact plan for this to happen.
The company’s stock has been attracting a fair bit of attention lately, gaining more than 40% in the past three months, outperforming the benchmark FTSE Bursa Malaysia KL Composite Index, which is down over the same period.
Based on its current share price of RM6.13 and analysts’ estimates of about 22 sen in total dividends to be paid out for FY15, V.S. shareholders could get a dividend yield of close to 4% for FY15.
Up to the nine months of FY15, the company has paid out 12 sen per share in dividends to shareholders.
Notably, it has a policy of distributing at least 40% of its net profit as dividends.
At its current share price, V.S. is trading at a trailing 12 months price-earnings (PE) ratio of about 10 times.
Closest industry peer, SKP Resources Bhd is trading at a trailing PE of about 23 times.
Based on this, as well as the growth potential of the firm, Beh feels that V.S. is undervalued and should be accorded a PE of “at least 18 times”, in his own words.
In July, the company proposed a share split involving the subdivision of one existing RM1 ordinary share into five ordinary shares of 20 sen each “to enhance the marketability and trading liquidity of its shares.”
“Things are about to get more exciting for V.S., if today someone comes and makes an offer for the company, I will not sell ... it’s still my baby after all these years.”
Beh, who spends a substantial time in China these days indulging in his personal interest – hotels, of which he owns a couple – says that he already has a potential team in mind that he believes will be able to take over V.S. once he takes a backseat in the management of the company.
“V.S. is a low-profile company but we have a good story to tell.”