VS  Industry  (VSI)’s FY13  results  were  slightly  below  our  estimates. Revenue and core net profit dropped 3.2% and 48.7% y-o-y respectively, no thanks to weaker sales and margins at its Malaysian and Indonesian operations.  The  company  proposed  a  second  interim  single-tier dividend  of  3  sen/share  this  quarter.  Maintain  NEUTRAL,  with  a  lower MYR1.18 FV.

- Slight  miss.  Revenue  dipped  3.2%  y-o-y  to  MYR1,163.9m  from MYR1,202m  in  FY12  while  core  earnings  shrank  48.7%  y-o-y  to MYR19.2m  (from  MYR37.4m).  This  excluded:  i)  an  exceptional  loss  of MYR5.9m  from  the  dilution  of  interest  in  its  China  associate,  and  ii)  a one-off  net  gain  of  MYR30.4m  arising  from  the  acquisition  of  additional 17.18%  equity  interest  in  V.S.  International  Group  (VSIG),  making  the latter its subsidiary during the quarter. The weaker numbers were mainly due to lower sales generated by its operations in Malaysia and Indonesia coupled  with  lower  margins  due  to  increased  competition  in  the 
electronic manufacturing services (EMS) sector.  The group’s turnover in Malaysia and Indonesia contracted by 5.2% and 15.5% y-o-y, while profit before tax (PBT) from the two countries plunged 41.6% and 57.4% y-o-y respectively on the back of lower sales orders and margin erosion arising from the minimum wage implementation.

- Margins. Gross profit margin slipped to 9.1% (FY12: 12.2%) while EBIT margin  dipped  to  5.1%  (FY12:  5.6%).  The  company  declared  a  second interim single-tier dividend of 3 sen/share, bringing the full-year DPS to 5 sen.

- Maintain NEUTRAL. We lower our FY14 gross profit margin forecast by 4.3%  due  to  weaker-than-expected  FY13  margins.  Key  risks  include lower  orders  from  key  customers  amid  the  weaker  macroeconomic environment.  We  trim  our  FV  to  MYR1.18  (from  MYR1.20),  as  we  roll over  our  valuation  to  9x  CY14  EPS  and  maintain  our  NEUTRAL recommendation. We think this valuation is fair as the stock is trading on par with its historical P/E of 10x.

Source: RHB