VS Industry downgraded after lower 2Q net profit

VS INDUSTRY Bhd (VS), the nation’s largest electronics manufacturing services (EMS) provider, has received at least one downgrade for its counter after announcing a lower net profit for the latest quarter.

It posted a net profit of RM30.36 million for the second quarter ended July 31, 2023 (2Q23), down 31.8% from the same period a year earlier, mainly due to foreign exchange loss following unfavourable exchange rates and higher financing costs.

Its quarterly revenue was up 13.1% to RM1.15 billion due to an increase in sales orders from major customers in Malaysia.

For the cumulative first half period, VS posted net profit of RM91.07 million, up 8.6% from the year before, on the back of RM2.44 billion in revenue.

HLIB Research today downgraded the counter to ‘hold’ from a ‘buy’ due to limited upside with a target price of 88 sen (previously RM1.14).

It noted that the quarter recorded a decline QoQ from decrease in sales orders from key customers.

“As guided previously, management expects the US customer, coffee brewer and pool cleaning customer to chart softer numbers on the back of recessionary fears. In addition to these, we gather that the order outlook from Customer X also started to dwindle with decline in demand for its certain products. With the absence of meaningful orders, we foresee risks of the group’s plant to be underutilized,” it said.

“We turn cautious as demand from major brand owners could still be subdued given the recessionary fears and subdued consumer sentiment,” it said in a research note released today.

On its part, PublicResearch has maintained its ‘outperform’ call on the counter, with a lower target price of RM1.14, down from RM1.23.

While orders from key customers are expected to remain steady over the medium to longer-term, it said that the looming specter of a global economic recession has culminated with weakening consumer confidence and increasingly subdued consumption spending.

“Those VSI’ customers are mostly industry-leaders in their respective consumer spaces and less susceptible to down-trading and/or switching by customers amid an increasingly challenging economic environment, we err on the side of conservatism and trim FY23 earnings expectations while keeping forward estimates comparatively lower vis-à-vis consensus,” it said.

In a statement yesterday, VS MD Datuk SY Gan said the company anticipates a potential uptick in consumer demand in the near future.

“Overall, the board opines that the financial performance of the group for the remaining quarters to be satisfactory barring unforeseen circumstances,” he said.

In line with its quarterly dividend payout policy, the board declared a second interim dividend of 0.3 sen per share for the current quarter, bringing the total dividend declared per share for the current fiscal period to 0.8 sen.

The counter has six ‘buy’, four ‘hold’ and a single ‘sell’ call. VS shares were at 81 sen at 10.40am with 2.8 million shares exchanging hands. – TMR / pic credit: vs-i.com