VS Industry to gain from turnaround in China operations — Research firm

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KUCHING: V.S. Industry Bhd (VS Industry) is poised to benefit from the turnaround of its operations in China.

AmInvestment Bank Bhd (AmInvestment Bank) yesterday said its 43.7 per cent-owned associate, VS International Group Ltd (VSIG) is expected to record 10 times increase in net profit for the first half of financial year 2017 (1HFY17) ended January 2017 from a net profit of RMB1.12 million in 1HFY16 ended January 2016.

The higher earnings projection, it said, could signalled that the company’s operations in China have turned a corner in the second quarter of financial year 2017 (2QFY17) ended January 2017 from a loss of RM4.9 million in 1QFY17 ended October 2016.

“The higher earnings figure would translate to approximately RM3 million in net profit to VS Industry in 1HFY17 ended January 2017,” it said in a report.

VSIG’s financial results for 1HFY17 was largely in line with its expectations of RM5-6 million profit contribution from China operations to VS Industry’s bottom line in FY17 ending July 2017.”

It believed the improving profits is achieved as VSIG ramped up the production of air purifiers for Perfect China since production commenced in November 2016.

To recap, AmInvestment Bank noted Perfect China has awarded a RMB400 million or approximately RM242 million contract to VSIG to manufacture a new purifier model for the Chinese market in 2016.

Apart from that, the company’s expansion in box-build segment is progressing well.

Since mass production of a floor-care product started at its first assembly line in December 2016, AmInvestment Bank observed that a second assembly line was installed last February to manufacture a slightly different variant of the floor-care product.

“A third assembly line is on track to start in May and is interchangeable to undertake production of either product variant,” it added.

As a result, AmInvestment Bank expects VS Industry to see rising orders from Customer X, which may possibly include a new product category and an enhanced version of the existing product category in FY18 ending July 2018.

At the same time, the research firm believed that the increased orders would position VS Industry for a bigger play to tap Customer X’s worldwide success.

Hence, AmInvestment said it continues to highlight VS Industry’s competitive edge as a leading supplier for Customer X in Malaysia, which puts the group in a sweet spot to see stronger order flow.

Meanwhile, the research firm expects VS Industry’s upcoming 2QFY17 ended January 2017 core profit to be stronger year-on-year (y-o-y) to be driven by higher revenue contribution from Customer X and Perfect China.

On a sequential basis, the core profit should be rather flattish as the higher contribution from the mentioned customers would be offset by seasonally weaker orders from Keurig after peak delivery in the fourth quarter of financial year 2016 (4QFY16) ended July 2016 and 1QFY17 ended October 2016 for the holiday seasons.