Company Coverage
VS Industry (VSI MK): Emerging From The Trough; Deep Value Beckons
BUY (Maintained)
Current price:
Target price:
Upside:
RM0.22
RM0.34
+54.5%
Analyst
Highlights
- Earnings are turning the corner, supported by stronger volume ramp-up across its customer base, narrowing losses from loss-making divisions, and early benefits from recently implemented strategic initiatives.
- VS trades at just 8.6x FY27F PE (-1SD below historical mean) and 0.4x FY27F P/BV (-2SD), well below even the trough valuations seen during the MCO period (0.83-0.88x P/BV), suggesting limited downside with asymmetrical upside potential.
- Current valuations more than compensate for risks. Maintain BUY with a target price of RM0.34. Key re-rating catalysts include further order normalisation, improving capacity utilisation, sustained earnings recovery, and potential new customer wins.
Analysis
- Recovery gaining traction despite near-term supply disruptions. VS Industry (VS) recorded two consecutive quarters of core losses in 2Q and 3QFY26, with order weakness observed across its customer base alongside margin compression. Following seven months of inventory correction, management highlighted encouraging signs of order ramp-up into 4QFY26 with monthly assembly revenue rising 30% mom from one of its key customers on new product launches. Although June was temporarily impacted by chip supply disruptions on this key customer, operations normalised in July with production returning May’s healthy turnover. While management acknowledged limited visibility on whether component shortages will persist, it expects operations to remain broadly on track for now.
- Seasonal ramp-up to anchor operational breakeven in 4QFY26. Beyond the recovery of its key customer, overall plant utilisation is receiving a further boost from the typical year-end seasonal demand. While reported earnings in 4QFY26 could still be typically weighed down by a potential one-off impairment on underutilised assets, management expects a meaningful acceleration in volumes from May 26 onwards. This will be driven by: a) recovering orders from its coffee brewer and US-based customer segments, b) improving utilisation and narrowing losses at its Philippines operations as new programmes ramp up, and c) a gradual recovery in demand from the Indonesian market. Collectively, these drivers are expected to lift overall plant utilisation and support a return to operational breakeven in 4QFY26, marking an important inflection point in the group's earnings recovery.
Highlights
- Earnings are turning the corner, supported by stronger volume ramp-up across its customer base, narrowing losses from loss-making divisions, and early benefits from recently implemented strategic initiatives.
- VS trades at just 8.6x FY27F PE (-1SD below historical mean) and 0.4x FY27F P/BV (-2SD), well below even the trough valuations seen during the MCO period (0.83-0.88x P/BV), suggesting limited downside with asymmetrical upside potential.
- Current valuations more than compensate for risks. Maintain BUY with a target price of RM0.34. Key re-rating catalysts include further order normalisation, improving capacity utilisation, sustained earnings recovery, and potential new customer wins.
Analysis
- Recovery gaining traction despite near-term supply disruptions. VS Industry (VS) recorded two consecutive quarters of core losses in 2Q and 3QFY26, with order weakness observed across its customer base alongside margin compression. Following seven months of inventory correction, management highlighted encouraging signs of order ramp-up into 4QFY26 with monthly assembly revenue rising 30% mom from one of its key customers on new product launches. Although June was temporarily impacted by chip supply disruptions on this key customer, operations normalised in July with production returning May’s healthy turnover. While management acknowledged limited visibility on whether component shortages will persist, it expects operations to remain broadly on track for now.
- Seasonal ramp-up to anchor operational breakeven in 4QFY26. Beyond the recovery of its key customer, overall plant utilisation is receiving a further boost from the typical year-end seasonal demand. While reported earnings in 4QFY26 could still be typically weighed down by a potential one-off impairment on underutilised assets, management expects a meaningful acceleration in volumes from May 26 onwards. This will be driven by: a) recovering orders from its coffee brewer and US-based customer segments, b) improving utilisation and narrowing losses at its Philippines operations as new programmes ramp up, and c) a gradual recovery in demand from the Indonesian market. Collectively, these drivers are expected to lift overall plant utilisation and support a return to operational breakeven in 4QFY26, marking an important inflection point in the group's earnings recovery.
BUY (Maintained)
Current price:
Target price:
Upside:
RM0.22
RM0.34
+54.5%
Analyst
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