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PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 27 Oct 2021, 10:12 AM

 

VS Industry Berhad - Record Year

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If not for stricter operating conditions under the Full Movement Control Order (FMCO) during the period, VS Industry (VSI) was expected to have reported a record quarterly profit for 4QFY21, kicking on from the strong performance the quarter before. 4QFY21 net profit came in at only RM41.5m (-24.2 YoY, -43.5% QoQ), though this was also impacted by an RM25m impairment on its investment in an associate. Excluding this, adjusted pretax profit would have been +7.8% higher however. Cumulative FY21 net profit of RM245.3m (+110.6% YoY), a record year, is ahead of our expectations at 109% of full-year numbers but within consensus at 98%. Core numbers would have exceeded both by quite a bit however. The discrepancy is mainly from better-than-expected margins, which we are incorporating into our estimates. In addition, we are now also anticipating earlier-than-expected line commissioning for some of its new customers, which sees us lifting FY22/FY23 net profit expectations by +3.9%/+7.0%. Consequently, our target price is raised further to RM1.86 (RM1.56 previously) on a 20x multiple to a rolled-over FY23 (July year-end) EPS, the longer-term horizon we deem as appropriate given the Group’s multi-year growth trajectory. Our Outperform call is affirmed. A fourth interim dividend of 0.5sen was declared.

  • 4QFY21 revenue of RM941.1m (+6.6% YoY, -12.4% QoQ) was sequentially lower due to movement restrictions in Malaysia which saw only 60% of the workforce being allowed to work. The Group’s domestic operations were also impacted by a 2-week Enhanced Movement Control Order (EMCO) in which production lines were completely not operating. Cumulative FY21 Group revenue of RM4.00bn is 23.4% higher YoY nonetheless, as higher sales orders were seen from some of its existing key customers.
  • 4QFY21 net profit of RM41.5m (-24.2% YoY, -43.5% QoQ), as indicated earlier, was largely impacted by an RM25m impairment on its investments in an associate. Cumulative FY21 net profit of RM245.3m (+110.6% YoY) was lifted by higher sales orders from existing key customers, favorable product sales mix in Malaysia (which resulted in better profit margins), turnaround in performance from Indonesia and narrower losses in China, the latter seeing lower expenses incurred following a series of streamlining initiatives.
  • Outlook. While orders from key customers are expected to remain healthy and robust, near-term earnings may be impacted by slightly higher operating costs (from COVID 19-related expenses), though not expected to be material in derailing record quarterly performances ahead. The Group’s new facility in i Park @ Senai Airport City will cater for several new product models which are projected to commence production progressively over the coming quarters. On a separate note, the Group has also commenced box-build production for a new customer from the US, while also engaging with potential customers in China, though immediate focus there will still be on cost management.

Source: PublicInvest Research - 27 Sept 2021

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