Analysts positive on VS Industry's prospects despite earnings miss

KUALA LUMPUR: Shares in VS Industry Bhd (VSI) fell almost 1% in early trade after its latest quarterly results fell below analysts’ expectations.

The integrated electronics manufacturing services (EMS) provider declined one sen, ot 0.98% to RM1.01 with 794,000 shares done. Year-to-date, the counter has fallen some 24%.

VSI’s net profit for the third quarter ended April 30, 2022, slipped 30.1% to RM51.29mil from RM73.38mil in the previous corresponding quarter as revenue was impacted by labour and supply shortages.

Its revenue stood at RM927.59mil, down 13.69% from the RM1.07bil posted in the year-ago quarter.

The board of directors declared a third interim dividend of 0.4 sen per share going ex on July 8, 2022, and payable on July 29, 2022.

In the first nine months to April 30, VSI posted a net profit of RM135.17mil on revenue of RM2.91bil.

RHB Research has maintained a 'buy' call on the stock with a new target price of RM1.49, from RM1.26 previously, reflecting a 46% upside with a 2% FY22 yield.

The research house said VSI’s 9MFY22 results missed expectations, as its recovery continued to be capped by the crunch in labour and component parts.

“Its current valuation is attractive – trading below the mean P/E –taking into account a 61% earnings growth in FY23F and the resolution of labour standard issues, with the audit findings expected to be announced soon. We also like the EMS sector for its cost- plus model – hence the insulation from the inflationary environment,” it said.

RHB Research expects VSI’s earnings to continue recovering post the arrival of new foreign labour that began at the end of May 2022.

“This should effectively lift the company's production capacity and output from its 4QFY22 onwards.

"Beyond the near term, its 61% earnings growth in FY23 should be underpinned by the normalisation in production and the contribution of new production lines.

"On the other hand, the social audit on labour practices is ongoing and is estimated to be completed soon. We believe that convincing positive results of this audit should remove the overhang on the stock,” RHB said.

Hong Leong Investment Bank said VSI chalked in 9MFY22 core PATAMI of RM 118.9mil which fell behind its/consensus expectations at 57%/59% respectively.

It said the setback was no thanks to the confluence of labour and components shortage. Despite the tough period, the group recorded sequential improvement with QoQ core PATAMI up by 6.9% attributable to a favourable product sales mix.

“We roll forward our valuation year to FY23 (from CY22). Maintain ‘buy’ recommendation with a target price of RM1.14 pegged to a lower PE multiple of 16x to FY23 EPS.

“As the biggest EMS player in Malaysia with a solid track record, we opine that VSI would be able to weather through the gloomy clouds while simultaneously scour for opportunities from the trade diversion,” it said.

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VS Industry , earnings , dividend , foreign labour , EMS


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