KUALA LUMPUR (June 26): VS Industry Bhd (VSI) has achieved a strong 43% growth in net profit to RM31.38 million for the third quarter ended April 30, 2019 (3QFY19) and declared an interim dividend of eight sen per share. Still, the higher profit and dividend fail to sustain the upward trend on the share price of Asean's fourth largest electronics manufacturing services (EMS) provider.
The stock dropped 2.7% or three sen to RM1.09 at the close, with 35.06 million shares changing hands, although it started the trading day on a high note, climbing to an intra-day high of RM1.17 this morning. Selling pressure emerged shortly after the opening bell, its share price drifted lower throughout the day.
"We believe that its prospects have been largely priced in, with a key upside risk being the securing of additional orders and/or customers in 2019," said AmInvestment Bank.
In a financial result review, AmInvestment Bank pointed out that VSI saw a 22% drop in core net profit for 3QFY19, due to lower sales orders from a key customer in Malaysia as well as declining sales from its Indonesia and China segments.
AmInvestment Bank expects VSI to register weak profit in 4QFY19, based on the EMS provider's current order visibility.
Even though AmInvestment Bank maintains its position that VSI is a beneficiary of the US-China trade dispute, the research house said the challenging outlook of the group's overseas operations continue to affect its performance.
According to PublicInvest Research, Malaysia continues to underpin VSI's growth, making up the lion's share of its revenue at 84%, with Indonesia and China still struggling to find their footing.
"The company is exploring opportunities arising from trade diversions out of China, with many multi-national company (MNC) brand owners actively looking to relocate operations to the ASEAN region.
"While management remains tight-lipped on progress of these talks, we reckon one or two could be close to signing on. Estimated annual contract sizes could average between RM200 million and RM300 million. Capacity is of no question as the group has readily-available production facilities to cater for potential new businesses, and a healthy cash pile to fund necessary capital expenditures," said Public Invest Research.
VSI may be the beneficiary of trade diversion should the tension between the world's two biggest economies escalates. However, the trade dispute seems to have taken a toll on its operation in China before VSI benefits from it.
"China operations continue to struggle. Its operations in China recorded revenue of RM93 million (-29% y-o-y, -12% q-o-q) and a core loss before tax of RM10 million in 3QFY19 compared with profit before tax of RM1 million in 4QFY18 and loss before tax of RM4 million in 2QFY19," said AlliaceDBS.
"Despite its ongoing cost-cutting exercise since 2H18, we understand that sales orders have declined significantly, weighed down by the ongoing US-China trade war. The group has accelerated its cost-cutting exercise in view of declining sales orders. We gather that the downsizing will continue in the upcoming quarters," it commented.
In a bourse filing yesterday, VSI announced that its net profit grew 43% to RM31.38 million from RM21.92 million a year earlier, supported by higher sales from key customers in Malaysia.
Quarterly revenue was almost flat at RM889.71 million from RM881.6 million previously.
For the first nine months of FY19, its net profit saw a marginal 0.09% growth to RM109.13 million, from RM109.03 million a year earlier, while revenue was down 4% at RM2.95 billion.