VS Industry 2Q net profit falls 14% on lower overseas orders

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KUALA LUMPUR (March 26): VS Industry Bhd saw its net profit decline 14% to RM37.94 million for the second quarter ended Jan 31, 2019 (2QFY19), from RM44.24 million a year earlier.

Revenue for the quarter fell 12% to RM982.65 million, from RM1.12 billion in the previous year’s corresponding quarter.

In a filing with the bourse, the group attributed the decline in performance to lower overseas contributions.

“Despite commendable performance from operations in Malaysia, the group profit before tax declined in the current quarter, mainly attributable to lower or negative contributions from overseas operations. Indonesia turned in marginal profit, while losses were recorded in China,” VS Industry said.

Its operations in Malaysia saw a 13% increase in pre-tax profit to RM51.74 million from RM45.9 million a year earlier, while the Indonesian business saw a drop in profit to RM318,000, from RM1.43 million.

It said the Indonesian operations were affected by a decline in sales orders from key customers, lower economies of scale and weaker Indonesian rupiah, compared to the previous year.

On the other hand, the loss in China was due to lower sales orders completed.

China reported a pre-tax loss of RM3.69 million, compared to its profit of RM20.28 million a year earlier.

For the first half of its financial year, the group’s net profit fell 11% to RM77.75 million from RM87.11 million, while revenue was down 6% to RM2.06 billion from RM2.19 billion.

“On a cumulative basis, these overseas operations, particularly China, had incurred losses that further affected the group's earnings. In addition, the overall performance was also influenced by net foreign exchange movements,” it said.

Looking ahead, VS Industry expects lower profitability in the second half of the current financial year, as compared to the first half, due to softening orders from certain key customers.

However, it said the impact may be less than previously expected, as the group has since received additional orders for a particular product that would partially cushion the moderation in orders.

“The temporary moderation in orders has not in any way detracted the Group from its focus to grow the business. This is especially true under the current scenario, where the US-China trade war has opened up many opportunities for the Group as various MNC brands are seriously considering relocating their manufacturing base to Southeast Asia.

“Malaysia, and in particular, our group, stands to benefit from this move. In response, concerted efforts have been put in by the group with the establishment of a special business development taskforce to pursue these opportunities,” it said.

The taskforce has so far secured Bissell International Trading Company BV as a new customer.

Meanwhile, the outlook for China remains challenging amid uncertainties surrounding the US-China trade dispute, rising operating costs and intense competition. It expects capacity to remain under-utilised.

“Given the aforementioned expected slowdown in order, the Board opines that the financial performance of the Group in the second half of the financial year will be softer.

“Despite the short-term challenges, the Board remains positive on the long-term prospects of the Group, underpinned by solid fundamentals, robust relationships with existing customers, strong execution skills, recent addition of new key customer and potential future contract wins,” the group said.

VS Industry’s share price rose 3 sen or 2.97% to RM1.04 today, giving it a market capitalisation of RM1.89 billion.