KUALA LUMPUR (March 23): Analysts on Thursday (March 23) lowered their target prices (TPs) for VS Industry Bhd, after the electronic manufacturing services provider’s results for the second quarter ended Jan 31, 2023 (2QFY2023) came in below their expectations.
CGS-CIMB Securities analyst Nagulan Ravi said in a note that the results came in below his expectations due to weaker-than-expected sales orders, higher-than-expected finance costs and foreign exchange (forex) losses.
This prompted him to cut his TP for VS Industry to 87 sen, from RM1 previously, while maintaining his “hold” call on the stock.
“We are not too concerned about the forex loss, as this was likely due to a time lag in passing on the losses, and we anticipate this to be reversed in the second half of FY2023 (2HFY2023) through higher average selling prices to its key customers,” Nagulan said.
VS Industry said on Wednesday its net profit for 2QFY2023 fell 31.76% to RM30.36 million from RM44.49 million a year ago, while revenue improved by 13.86% to RM1.15 billion from RM1.01 billion.
Nevertheless, the group announced a second interim dividend of 0.3 sen, payable on April 28.
For 1HFY2023, net profit rose 8.57% to RM91.07 million from RM83.88 million a year earlier, while revenue also improved 23.23% to RM2.44 billion from RM1.98 billion.
Public Investment Bank Bhd analyst Ching Weng Jin said that VS Industry’s net profit came in sequentially weaker.
However, he said that the company’s cumulative core net profit of RM110.9 million — after excluding the forex loss — was within his expectations at 47% of the full-year estimate, though behind the consensus at 45%.
“That said, we continue to remain wary over potentially weaker consumption spending in the near term, particularly in the US and Europe, which have seen rapid interest rate hikes that will invariably weaken sales,” he said.
Ching is conservative about VS Industry, and cut his FY2023 estimate by 13.2% to account for weaker sales.
“We still like the longer-term investment merits of the company, underpinned by steady order flows from its key customers, and affirm our 'outperform' call, though with a lower price-earnings-based TP of RM1.14 (from RM1.23 previously),” he said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research analyst Syifaa’ Mahsuri Ismail said that VS Industry’s results missed expectations of the research house at 42% of its full-year estimate, and 46% of the consensus.
HLIB downgraded VS Industry to “hold” from “buy” previously, and trimmed its TP to 88 sen from RM1.14, together with the FY2023/24/25 forecasts by 23%/23%/14%.
“We turn cautious, as demand from major brand owners could still be subdued, given the recessionary fears and subdued consumer sentiment,” she said.
RHB Investment Bank Bhd analyst Soong Wei Siang said that VS Industry’s results were “disappointing on worse-than-expected diseconomies of scale and forex losses”.
Soong maintained his “neutral” stance on VS Industry, while cuttng his TP to 84 sen from 86 sen previously, as well as his FY2023-25 earnings forecasts by 7%-14% to account for lower margins.
“Notwithstanding the management’s expectations of volume bottoming out, we believe it will require more clarity on the demand outlook, before sentiment on the stock can recover.
“We believe investors could continue to stay on the sidelines, given the uncertainty over the global economic outlook, and any potential deterioration of global demand will dent VS Industry’s profitability significantly, given the heavy fixed costs,” he said.
At the time of writing on Thursday, VS Industry had fallen 1.22% or one sen to 81 sen a share, valuing the group at RM3.12 billion.