• Following the termination of labour rights activist Andy Hall’s voluntary engagement with V.S. Industry (VSI), management held an analyst briefing to address concerns of the investment community. Key takeaways from the briefing and announcement are as follows:

1. VSI’s appointment of PwC Consulting Associates (M) Sdn Bhd (PwC) was ultimately premised on the group’s belief that findings from an audit by a more reputable name will be internationally recognised.
2. The audit process will be fully carried out by PwC, in which the group has faith that will be true and fair. The details of the audit methodology and assessment will not be shared without consent from PwC and VSI’s board of directors given the materiality and confidentiality of the information. To recap, the review will be based on the 11 International Labour Organization’s (ILO) indicators of forced labour.
3. The audit is expected to be completed in 3-4 months according to PwC’s estimate which should ensure a comprehensive and extensive review. The audit will be extended beyond migrant workers, covering its entire workforce. In an announcement to Bursa Malaysia yesterday, VSI said that PwC has commenced the review of its labour practices on 3 Mar 2022.
4. VSI has been actively updating the assessment progress to its major customers, who do not have any objections to PwC’s appointment as the independent reviewer.
5. Management does not expect the withdrawal of Andy Hall’s engagement to have any material impact to its business operation.

• We remain optimistic on the group’s commitment to work closely with relevant parties for better ESG standards, particularly on improving employees’ welfare. Recall that VSI has also allocated RM30mil for a new hostel with construction scheduled for completion by June 2022 to enhance its employees’ living conditions.

• As such, we see limited downside ESG risks given the group’s continuous efforts to rectify any deficiencies. We maintain our BUY call on VSI with an unchanged fair value of RM1.61/share, pegged to an FY23F PE of 20x, in line with its historical 2-year average. We made no adjustment to our neutral 3-star ESG rating.

Source: AmInvest Research - 4 Mar 2022