RHB Investment Bank Bhd (RHB Research) has reiterated its BUY call on VS Industry Bhd despite a revised target price of RM1.33, down from RM1.39, from the research house. RHB Research highlighted expectations of robust earnings recovery in the second half of the financial year 2025 (2HFY25), buoyed by new product launches and improved seasonality.
VS Industry experienced a challenging start to FY25, with its 1QFY25 core net profit declining 38% year-on-year to RM31 million. Key factors included unfavourable foreign exchange rates, RM7 million in losses from subsidiary HT Press Work Sdn Bhd due to high product rejection rates, and inventory adjustments by a US-based customer ahead of new product launches. However, RHB Research projects a gradual quarter-on-quarter recovery leading to a sharp rebound in the latter half of FY25.
Customer X, a significant contributor to VS Industry's growth, has awarded the company two new orders valued at RM100 million annually, with production commencing in February or March 2025. Additionally, VS Industry is pursuing RM800 million worth of floorcare segment jobs that could materialise by early 2025. Operations in the Philippines are also expected to execute RM1.2 billion worth of orders starting April 2025, potentially driving a 77% growth in FY26.
Efforts to diversify into the medical industry have shown initial promise, although progress has been hampered by stringent qualification requirements. VS Industry has invested around RM3 million to RM4 million in this venture, which management believes could yield higher profitability and more stable demand compared to the consumer electronics segment.
RHB Research cautioned that risks to its recommendation include delays in expansion plans and a potential loss of market share, but noted that successful execution of current projects could drive margin enhancement and a re-rating of the stock.
