RHB Research said VSI could secure new orders as more brand owners look to diversify their production sources in reaction to the US tariff move.
PETALING JAYA: The recent share sell-down in integrated electronics manufacturing services provider VS Industry Bhd
(VSI) has more than priced in its forthcoming results disappointment.
According to RHB Research’s checks with management, there was no loss of key customers or major change to business fundamentals.
“Instead, we learnt that volumes are picking up, spurred by the favourable year-end seasonality and new product launches by key customers.
“VSI could also secure new orders as more brand owners look to diversify their production sources in reaction to the US tariff move,” it said in a note to clients.
Meanwhile, the startup of its Philippines operations is well on track – productivity levels, initially the biggest execution risk, are trending on par with expectations, whilst more parts are being produced in-house progressively, the research house said.
It was maintaining a “buy” call on the stock, with a new 78 sen target from 99 sen, a 26% upside and circa 4% financial year ending July 31, 2026 (FY26) yield.
At press time, it was 61 sen.
“Notwithstanding the uncertainties and challenges from the US tariff policy, we believe the current depressed valuation (below mean) has undervalued VSI,” it said.
It said the investment merits underpinning its positive stance are still intact, for example, market share gains with customer X and pockets of opportunities from the trade diversion angle.
In the long run, Malaysian players could benefit structurally from sustainable job flows, given the tariff differential versus China, said RHB Research.
It noted that VSI is scheduled to release its fourth quarter FY25 (4Q25) results next Tuesday.
“Our previous forecasts on expectations of a strong volume ramp-up in 4Q25 may not play out, considering the uncertainties on the US tariffs during the quarter before the final decision on Aug 1,” it said.
It noted that this could have led to a drop in production throughput (circa 60% of VSI’ sales go to the United States) as customers opted to take a wait and-see approach and defer their shipments.
“The sales weakness will translate to a sharp margin erosion on negative operating leverage given the high fixed-cost nature of the business.
“As such, we estimate 4Q25 core net profit to come in at less than RM5mil. We also highlight that 4Q always has material adjustments/impairments, and this time around it could be more unpredictable following the change of its auditor after more than 30 years with the previous one.”
