V.S. Industry: A Comprehensive Analysis of Future Prospects and Financial Performance
Date: December 9, 2024
Broker: Maybank Investment Bank Berhad
Introduction
V.S. Industry Berhad (VSI) is an established player in the electronics manufacturing services (EMS) sector, currently positioned as the 26th largest by revenue worldwide. This report delves into VSI’s operational strategies, financial performance, and market outlook, providing a comprehensive analysis for potential investors.
Operational Outlook and Strategies
Customer Partnerships and New Contracts
VSI is optimistic about its future growth, anticipating stronger quarters ahead despite a soft start in 1QFY25. The company is banking on increased contributions from significant customers, including a US-based entity and a coffee brewer, driving a more robust second half of FY25. Notably, Customer X, a US-based partner, is expected to bolster earnings with new model rollouts beginning in 3QFY25. VSI’s strategic engagement as one of the three global contract manufacturers (CM+) for Customer X allows it greater material sourcing authority, enhancing its value chain.
Expansion and Streamlining Efforts
VSI’s recent streamlining and expansion initiatives are set to improve margins, partially mitigating losses from non-performing operations such as HT Press. The company expects contributions from its Philippines operations and a prospective medical product customer to fuel medium-term growth, with a significant impact projected from FY26E onwards.
Financial Performance and Projections
Revenue and Profitability
VSI reported revenues of MYR4,555.2 million and MYR4,248.1 million for FY23A and FY24A, respectively, with projections of MYR4,458.9 million for FY25E. EBITDA is expected to see a modest growth of 2.9% in FY25E, reaching MYR425.0 million. The company’s focus on enhancing its operational efficiency is reflected in the anticipated EBITDA margin of 9.5% for FY25E.
Core Net Profit and Earnings Growth
The core net profit is projected to rise from MYR190.9 million in FY24A to MYR229.1 million in FY25E, marking a 20% growth. This improvement is driven by strategic customer engagements and operational enhancements, positioning VSI favorably for sustained earnings growth beyond FY25E.
Regional Operations and Market Expansion
Indonesia and Vietnam Operations
The company’s Indonesian operations experienced a 49% YoY growth in 1QFY25, fueled by a power meter customer relocating production from Malaysia. The Vietnam subsidiary is expected to offset losses from its Chinese operations, following a strategic increase in ownership from 19% to 62% in VSVN.
Philippines Market Entry
In the Philippines, VSI’s new 100%-owned subsidiary is set to commence operations by April 2025, supporting Customer X’s supply chain. While initial margins in FY25E are expected to be minimal due to startup costs, more substantial contributions are anticipated from FY26E onwards.
Risk Factors
Potential risks to VSI’s projections include weaker consumer demand, lower-than-expected margins due to cost inflation or operational inefficiencies, supply chain disruptions, and forex fluctuations impacting profitability.
Investment Recommendation
Maybank Investment Bank Berhad maintains a ‘BUY’ recommendation for VSI, with a target price of MYR1.28, reflecting a 17% upside potential. The positive outlook is supported by strategic customer partnerships, operational enhancements, and regional market expansion, positioning VSI for sustainable growth in the EMS sector.
