KUALA LUMPUR: RHB Research said there needs to be more clarity on the demand outlook for VS Industry Bhd
, despite the company's expectations that volume is bottoming out.
VS Industry is not rationalising its fixed costs by downsizing its resources as it believes the volume may rebound as some key customers line up new product launches towards the year-end.
However, RHB holds an opposing view that investors could remain on the sidelines given the uncertainty of the global economic outlook.
"Any potential deterioration in global demand will dent VS Industry's profitability significantly given the heavy fixed costs," it said.
Guiding investors on the coming quarter, VS Industry said it expected 3QFY23 earnings to remain subdued in view of the seasonality factor and key customers remaining cautious on the near-term demand outlook.
The company announced its 1HFY23 results were hit by worse-than-expected diseconomies of scale and forex losses with net profit of RM91mil meeting only 36% of RHB's and consensus full-year estimates.
"Post-results, we cut FY23F-25F earnings by 7-14% to account for the lower margins.
"Our target price drops marginally to 84 sen as we roll over the valuation base year to 2023F from FY23F, based on unchanged 13x P/E," said RHB, while maintaining its "neutral" recommendation.
