KUALA LUMPUR: Electronic Manufacturing Integrated Service Provider (EMS) VS Industry Bhd is expected to experience sustained low margins in the second half of its fiscal year ending July 31, 2022 (FY22) due to labor and component shortages as well as rising raw material costs, according to CGS-CIMB Research.
The research unit said it had lowered its FY22 earnings per share (EPS) forecast for VS Industry and remained cautious about the impact of supply chain disruptions on its operations, as she has yet to see clear signs of improvement on that front.
CGS-CIMB Research also cut its FY23 EPS forecast from VS Industry, as it expects component shortages to continue to plague the industry through the first half of FY23.
However, CGS-CIMB Research noted that it expects “revenue momentum to remain stable over the coming quarters thanks to a ramp-up of production for customer Y as well as three new models obtained in first quarter of FY22 with client X”.
The research unit said it continues to like VS Industry for its diverse customer base as well as its undemanding valuations.
CGS-CIMB Research maintained its “add” call on VS Industry, with a lower target price of RM1.33, still setting it at 15.7 times the 2023 PE (price-earnings), in line with its historical average PE over five years.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said VS Industry, as the largest EMS player in Malaysia with a strong track record, is one of the main beneficiaries of the escalation of the diversion theme. trades.
HLIB Research also cut its FY22 forecast for VS Industry by 17% to account for near-term margin issues.
The research unit maintained its “buy” call with a lower target price of RM1.45 (from RM1.78) based on 18x PE (previously 20x), pegged to 2022 EPS.
“Following the recent sell-off, the stock is currently trading at an attractive estimated PE of 10.4x FY23. We like VS Industry given the good order outlook brought by continued consumer electronics demand; and expanding margins through customer diversification efforts,” said HLIB Research.
In view of the labor shortage, VS Industry is stepping up its efforts to hire local workers to combat the shortage of foreign labor.
“Should the government announce that it will allow entry of foreign workers this year, we believe that VS Industry would be able to meet the strong growth in orders from its customers,” said HLIB Research.
The group’s client X also has good prospects with the diversion of orders from another contract manufacturer following the recent labor issue.