Stripping out net foreign exchange loss (RM2.9m) and gain on disposal of property, plant and equipment (RM0.7m), VS Industry kick-started 1QFY25 with a core profit of RM31.3m, down 23.3% YoY, dragged by continued weakness in global consumer electronics demand coupled with unfavourable foreign exchange currency movements. The results made up only 13% and 12.1% of our and consensus full-year estimates, respectively. Nevertheless, we expect to see a positive recovery going forward. Following our housekeeping changes and also taking into account the dilution impact from a bigger share base due to exercise of option through an ESOS Trust Funding Mechanism, we lower our TP from RM1.40 to RM1.18 based on 15x FY26 EPS. Our Trading Buy call remains however. A first DPS of 0.4sen (vs 1QFY24: 0.3sen) was declared for the quarter.

• 1QFY25 revenue fell 2.6% YoY. During the quarter, revenue declined 2.5% YoY due to a decline in sales orders from its key customers and unfavourable foreign exchange movements. Nevertheless, we are not too concerned about the forex losses, as this was likely due to a time lag in passing the forex losses. We anticipate this will be reversed in the subsequent quarters through higher ASPs to its key customers. By country of operations, Malaysia remains the largest sales contributor with revenue of RM801m (-0.1% YoY). Sales from Indonesia soared 49.2% YoY to RM111.1m on the back of stronger orders from customers. On the other hand, sales from Singapore contracted from RM263.6m to RM198.1m.
• Core profit weakened by 23.3% YoY. Stripping out exceptional items, bottomline contracted from RM40.8m to RM31.3m, dragged by Malaysia (-43.1% YoY), Singapore (-58.2% YoY) while Indonesia saw a turn around with a profit contribution of RM5.7m. Meanwhile, higher operating expenses (+5.5%) also weighed on the bottomline. It is worth noting that it incurred a small loss of RM0.2m from the 33.66%-owned VS International Group Limited.
• Speculation on scaling back of operations. We understand that there has been recent speculation about one of its key customers wanting to dial back on its hair dryer-related operations in Malaysia. Those lines of product contributed about 24% of VS Industry's contract manufacturing sales. Following our channel checks, we have been made to understand it is not true, as this key customer has been strengthening its collaborations with Malaysia's contract manufacturing players, focusing on ramping up production and expanding product offerings.

Source: PublicInvest Research - 4 Dec 2024