VS Industry 1Q earnings drop 7.1% due to net forex loss


VS INDUSTRY Bhd’s (VSI) earnings for the first quarter ended Oct 31, 2018 (1QFY19), dropped by 7.13% year-on-year (YoY) to RM39.81 million due to high net foreign-exchange (forex) loss, in addition to loss on disposal of a subsidiary in China.

The company noted a RM6.4 million net forex loss during the quarter, as well as a RM5.42 million loss on the subsidiary’s disposal.

Revenue for the three months, however, remained flat at RM1.08 billion against RM1.07 billion a year ago, as the increase in the Malaysian segment offset the decline in the Indonesian and Chinese segments.

The Malaysian segment posted a RM886.8 million revenue in 1QFY19, which is a record high quarterly revenue for the country.

The 9.4% increase in revenue against 1QFY18 was mainly due to higher sales orders from key customers.

The Indonesian segment recorded a revenue of RM75.3 million during August-October, 30.04% lower than RM107.63 million last year. VSI said the decrease was further affected by the weakening of the rupiah.

Meanwhile, the Chinese segment’s revenue for the quarter fell by 26.78% YoY to RM112.21 million, as a result of lower sales orders completed.

VSI added that lower than optimal utilisation rate remains an issue in the country as the revenue was insufficient to offset the fixed overhead costs.

In addition, a loss on disposal of a subsidiary amounting to RM5.4 million recognised during the quarter further dampened the segment’s performance, resulting in a higher loss before tax of RM20.4 million.

VSI said it expects the growth for the Malaysian segment in the first half of FY19 (1HFY19) to be driven by existing order flow from its key customers.

Operating environment remains challenging and competitive, with rising costs putting strain on profitability.

The company is committed to improving overall operational efficiency as counter measures to contain cost pressure.

Prospects in 2HFY19 are expected to weaken as the company anticipates order flow from a key customer to decline, which would affect the company’s level of profitability.

VSI is in serious discussions with several prospective multinational corporation customers to secure new orders that would fill up the excess capacity.

It added that the outlook for Chinese segment appears to be difficult at this juncture given the uncertainties including the US-China trade war, rising operating cost structure and intense competition.

However, the issue of under-utilisation of capacity is expected to prevail at this juncture.

“The board is cognisant of the challenges ahead, and together with the management, are taking necessary steps to manage the situation.

“Nevertheless, given the aforementioned circumstances, the board opines that the financial performance of the group in 2QFY19 will be affected by the anticipated lower sales order,” it noted.