KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) is encouraged to see the uptick in sales orders for VS Industry Bhd (VSI) with the pick-up from the preparation for the holiday and festive seasons by the end of 2023.
"We gather that, based on communication with customers, VSI expects the momentum to sustain into FY24, which will be supported by new models launching," the bank-backed research firm said in a note.
HLIB Research recalled that most brand owners delayed their product releases this year due to inflationary pressures and softer consumer sentiment.
As for Customer Y, VSI shared that there are signs of a gradual increase in orders, albeit at a slower pace.
"Despite the expectations from the uptick in sales, we reckon that margin would still be challenged, especially from the increased labour costs and utilities coupled with the underutilisation of Customer Y in the i-Park facility," HLIB Research said.
VSI's recorded revenue of RM1.2 billion for the fourth quarter (Q4) FY23, up by 16 per cent year-on-year (YoY), translated into core profit after taxation and minority interest (PATAMI) of RM53.3 million.
This brought FY23's sum to RM195.4 million, which is above expectations at 112 per cent and 108 per cent of HLIB Research and consensus forecasts, respectively.
The research firm also noted that VSI's FY23 one-off adjustments include a net forex loss of RM6.7 million, a loss of disposal of personal protective equipment (PPE) of RM179k and an impairment loss on PPE of RM4.7 million.
As for YoY, VSI's revenue increased by 16 per cent, with growth across Malaysia (+5 per cent), Indonesia (+7 per cent), China (+40 per cent) and Singapore (85 per cent).
Despite the improvement in sales in China, the low revenue base with an absence of large orders caused continued losses, albeit a smaller quantum of RM3.0 million. On the flip side, core PATAMI was lower by 38 per cent, with contraction in core EBITDA margin down by 2.2 percentage points (ppt).
HLIB Research maintains a 'Hold' call for VSI, and after rolling forward its valuation year to FY24 (from 2023), the target price increases slightly to RM0.99 from RM0.84 previously based on an unchanged 16x price-earnings (PE) multiple.
"We reiterate our call given the volatile market climate and cautious demand.
"We remain wary as demand from major brand owners could still be subdued given the recessionary fears and subdued consumer sentiment," HLIB Research said.
