UOB Kay Hian
Report Date: 3 July 2025

VS Industry Berhad: Poised for a Strong Turnaround and Growth Acceleration in FY26

Introduction: UOB Kay Hian Maintains Bullish View on VS Industry

VS Industry Berhad (VSI), a leading player in contract manufacturing, plastic parts, and electronic sub-assembly, is showing clear signs of recovery after a challenging period. With manufacturing operations spanning Malaysia, China, and Indonesia, VSI is now positioned for a sharp earnings acceleration, particularly in FY26. UOB Kay Hian reiterates its BUY call, raising the target price to RM1.00, reflecting an upside potential of 19%.

Company Profile and Stock Data

• Sector: Information Technology
• Bloomberg Ticker: VSI MK
• Shares Issued: 3,947.7 million
• Market Cap: RM3,316.1 million (US\$783.9 million)
• 3-Month Avg Daily Turnover: US\$5.1 million
• Major Shareholders:
  • Employees Provident Fund: 9.1%
  • Beh Kim Ling: 7.7%
  • Beh Hwee Sze: 7.4%
• 52-Week High/Low: RM1.33 / RM0.72
• FY25 Net Asset Value Per Share: RM0.51
• FY25 Net Cash Per Share: RM0.01

Share Price Performance

• 1 Month: +7.7%
• 3 Months: +2.4%
• 6 Months: -28.2%
• 1 Year: -30.6%
• Year-to-Date: -27.6%

Recovery Narrative: Sector-Wide Rebound, VSI as a Value Laggard

After a sector-wide selloff ignited by the 2 April Liberation Day tariff announcement, which hit exporters hard, VSI underperformed in the subsequent relief rally. While peers saw rebounds of 32% (BM Technology Index) and 29–58% (EMS stocks), VSI’s rebound was limited to 29%, reflecting ongoing investor caution amid concerns over softer end-demand, margin pressure, and delayed product launches. As a result, VSI trades at an undemanding 14x FY26F PE, which is 0.75 standard deviation below its 7-year forward mean, indicating pockets of undervaluation remain.

Operational Challenges and a Promising Turnaround in FY25–FY26

VSI’s 9MFY25 was marked by several operational headwinds:

• Forex headwinds in 1Q
• Inventory adjustments by a major US customer in 2Q
• Operational disruptions linked to tariff uncertainty in 3Q

Despite this, the company is witnessing resilient underlying demand, particularly from its key customer, where new product models launched in 1Q25 are ramping up production. Additionally, four new models have been awarded locally, with one already in production and three on standby, presenting a significant incremental revenue potential of RM800 million.

Philippines Expansion: A Strategic Growth Engine

VS Industry’s venture into the Philippines is gaining momentum:

• Mass production of a beauty care product is already underway, expected to contribute RM40 million in FY25 and ramp up significantly in FY26.
• A new floor-care appliance project is scheduled for production in December 2025, expected to further multiply revenue contributions.
• The Philippines facility acts as a hedge against tariffs, with a five-year tax exemption, and could generate up to RM1.7 billion in annual sales at scale.
• Discussions are ongoing for two additional product lines to maximize the facility’s revenue potential.

Financial Highlights and Outlook

Strategic Initiatives: Onshoring, New Industries, and Margin Upside

• VSI’s Philippines subsidiary secured key box-build assembly orders projected to deliver RM1 billion in annual revenue for FY26, though management now expects RM515 million due to labor constraints.
• Malaysia operations have secured new orders worth RM800 million, covering both existing and new product lines, potentially boosting capacity utilization and margins.
• Malaysia and the Philippines are preferred onshoring destinations due to entrenched supply chains and advantageous tariff positions.
• VSI is in early-stage discussions with new MNC customers, including a notable opportunity in the medical devices sector. A potential RM300 million contract in FY26 could boost earnings by 6% if secured.

ESG Commitments

Environmental:

• Certified with ISO 14001:2015 Environmental Management System for assembly services.

Social:

• In-House Vaccination Programme in August 2021 achieved a 99.8% vaccination rate for the workforce.
• Active engagement with migrant worker rights specialists and independent auditors to enhance worker welfare in Malaysia.

Governance:

• Anti-Corruption Framework in compliance with Section 17A(5) of the Malaysian Anti-Corruption Commission Act 2009.

Sales Assumptions by Geography and Customer

Valuation and Recommendation: Attractive Upside, Prudent Approach

• BUY rating maintained; Target Price raised to RM1.00, based on 15x FY26F PE (0.5 SD below 7-year forward mean).
• Valuation reflects a prudent stance given tariff uncertainties, yet offers attractive upside.
• If the US-Malaysia trade deal proves more favorable and Malaysia sustains its tariff advantage, the target price could be revised to RM1.16 (18x FY26F PE, matching the 7-year mean).

Conclusion: Ready for a Transformative FY26

With operational headwinds largely behind and new growth drivers from both Malaysia and the Philippines, VSI is set for a robust earnings rebound in FY26. Strong customer orders, onshoring momentum, and potential new industry forays make this a stock to watch for investors seeking value and growth in the contract manufacturing sector.

Disclaimer

This article is based solely on information provided by UOB Kay Hian as of 3 July 2025. For detailed disclosures and the full disclaimer, please refer to the original report or contact UOB Kay Hian directly.