The Group reported a sequentially stronger headline net profit of RM66.1m (+85.7% YoY, +146.9% QoQ) for 4QFY23, due in part to a foreign exchange gain of RM19.7m. Cumulative FY23 net profit of RM183.9m (+7.7% YoY) is within expectations at 101% of our full-year estimates, and 103% of consensus. Consumption spending appears to be on the road to recovery against the backdrop of tighter global monetary conditions, reflected by the resumption in revenue growth – 4QFY23 revenue of RM1.16bn (+15.7% YoY, +16.5% QoQ) and FY23 revenue of RM4.60bn (+17.5%). Cost pressures have dissipated, with net margins expect to revert to between 4.5% and 5.0% going forward. While we continue to like the longer-term investment merits of the company, underpinned by steady order flows from its key customers, we lower our call to Neutral given limited price upside to our unchanged PE-based target price of RM1.02. A fourth interim dividend of 0.5sen and final dividend of 0.5sen was declared, bringing cumulative year-to-date dividends to 2.2sen.

• 4QFY23 revenue of RM1.16bn (+15.7% YoY, +16.5% QoQ) is higher on the back of improved sales orders from key customers, and an encouraging development considering that it is not supposedly a seasonally stronger quarter.
  By country of operations, Malaysia continues to a key driver of Group sales, making up ~72% of total revenue, with a 4QFY23 contribution of RM833.4m (+5.2% YoY). Revenue of RM230.1m (+85.4% YoY) for the Singapore segment (a US-based customer, previously classified under its Malaysian operations) is also higher in line with improved sales orders from another key customer. The Indonesian operations also saw improved revenue contributions of RM80.7m (+7.0% YoY). China’s ongoing de-scaling of its operations, with cumulative FY23 revenue at only RM49.0m (-38.5% YoY).

• 4QFY23 reported net profit of RM66.1m (+85.7% YoY, +146.9% QoQ) was lifted by an RM19.7m foreign exchange (FX) gain, though partly mitigated by an RM4.7m impairment loss on plant and equipment. While operational improvements are more apparent, the current quarter remained impacted by higher labor cost, electricity tariff and financing cost. Cumulative FY23 headline net profit RM183.9m includes an FX loss of RM6.7m and asset impairment of RM4.7m whilst FY22 net profit of RM170.8m includes an RM11.3m FX gain, RM7.4m asset disposal loss, RM12.4m asset impairment and RM26.8m impairment of an investment. Excluding these one-off items, FY23 core net profit would have been RM195.3m (-5.3% YoY).

• Recent developments. The Group recently announced the acquisition of an additional 11% stake in HT Press Work Sdn Bhd (HTPW) to gain control with a 51% holding. The synergistic acquisition of HTPW, a company involved in metal stamping, tool and die design and fabrication, amongst others, could see VSI consolidating an additional RM11m in net profit though we err on the side of conservatism and keep overall estimates unchanged at this juncture.

Source: PublicInvest Research - 27 Sept 2023