VS Industry Berhad - Subdued Start

Date: 
2023-12-21
Firm: 
PUBLIC BANK
Stock: 
Price Target: 
0.74
Price Call: 
HOLD
Last Price: 
0.85
Upside/Downside: 
-0.11 (12.94%)

The Group saw revenue for 1QFY24 decline to RM1.15bn (-10.9% YoY, - 0.7% QoQ) as order flows from key customers remain subdued, reflective of near-term demand still being impacted by tighter monetary conditions and likely shifts in consumer preference toward staples. Consequently, headline net profit came in weaker at RM49.0m (-19.3% YoY, -25.9% QoQ). While broadly meeting our expectations at 23% of full-year numbers but missing consensus at 21%, we are compelled to cut forward earnings (FY24-FY26) estimates by 22.3% on average to account for the unexpectedly weaker demand. Given the uncertain near-term outlook, we also lower our earnings multiple to 17x (20x previously), which sees our PE-derived target price also lowered to RM0.74 (RM1.02 previously). While we continue to like the longer-term investment merits of the company, we maintain our Neutral call given limited variations to our target price. A first interim dividend of 0.3sen was declared.

  • 1QFY24 revenue of RM1.15bn is lower due to decreased sales orders from key customers, somewhat worrying as the current quarter is typically a seasonally stronger one in view of restocking activities ahead of the year-end festive holidays.

    By country of operations, Malaysia’s revenue of RM802.2m (-20.4% YoY, -3.7% QoQ) sums up the overall weakness in order flows from its existing key customers. Singapore’s revenue of RM263.6m (+57.3% YoY, +14.6% QoQ) reflects the Group’s growing traction with its newest customer (a US-based entity previously classified under its Malaysian operations). Indonesia and China’s respective revenues of RM74.5m (- 29.7% YoY, -7.8% QoQ) and RM12.8m (-1.8% YoY, -26.6% QoQ) are the result of subdued global demand.
     
  • 1QFY24 reported net profit of RM49.0m (-19.3% YoY, -25.9% QoQ) is consequently lower in line with the reduced revenue, as poorer plant utilization rates also led to lower economies of scale. Elevated labor and financing costs, as well as higher electricity tariffs resulted in net margins remaining subdued at 4.2% (1QFY23: 4.7%). Aided by a foreign exchange (FX) gain of RM8.9m, core net profit for the quarter would have been worse at RM40.1m (-51.2% YoY)

Source: PublicInvest Research - 21 Dec 2023

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