V.s. Industry Berhad

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$VS / 6963 (V.S. INDUSTRY BERHAD)

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VS 2QFY25 briefing keytakes

Date: 26 Mar 2025

Management: CS Chong (CFO), CS Ng (GM)

Key takeaways:

- 2QFY25 revenue: Softer qoq revenue due to order sesasonality and lower demand from key customer in MY and IND. 1HFY25 performance impacted by lower demand and forex fluctuations
- Revenue contribution: Back then customer Y contributed RM170m in 1HFY24, but now with the absence of it alongside orders decline in customer B in US. Customer K – maintain. Customer X contribution is up RM700m in 1HFY24, and now c.RM900m in 1HFY25.
- NP Larger than proportionate Qoq decline stemming from lower economies of scale. Affected by forex in 1QFY25 resulted in higher costs. HT Press dragging the performance from e-cigg segment.
- Without customer Y, started LSR operation – contributed RM80m revenue in 1HFY25 (for internal and external consumption)
- Declared 2nd interim DPS of 0.4sen to YTD 0.8sen.
- Inventory reduced from RM800m to RM400m, hence CF operation

Updates on customer

- MY: X, K, Z, and SG – B.
- Z + F = flat or slightly lower.
- Updates from Indonesia: Undergone inventory adjustment in 4QCY24, to gradually pick up. Orders from other customers to be healthy. Expects FY25 performance to be satisfactory. Exploring new opportunities.
- US based customer – inventory adjustment to persist up to 3QFY25 and expect orders to gradually pick up. Secured new models and target to start production in 2HCY25. Production for new models started in Mar. 2HFY25 was bad. PBT at RM18m, now -RM9m
- Coffee brewer customer – existing orders to remain healthy, new model in the pipeline for end of 3Q.
- Pool cleaning customer – orders remain relatively stable. Projection, initially RM400m, lower than that now.
- Customer X – demand outlook continues to be healthy. 2 new models secured have since started production in 1QCY25. Secured new models. Value chain enhancement – 1st project (LSR) is running well and continue to supply internally and externally. 2nd project (dipping) contributing positively, 3rd project (blistering) to commence soon. 4th project (tubing) to commence in tandem with new models secured (FC).
- Philippines – renovation is competed and installation of machines to be concluded soon. Test run and mass pro to start in 2QCY25. Secured 2 models and bidding for more models. Enjoying zero tax exemption for 5 years.

New Biz development

- Slight delayed to PH market due to labour.
- In PH, Captain america (BT), SOP in May25, FY25 revenue RM7.2m, FY26 revenue of RM345.6m.
- In PH, Spiderman (new model of BT), delayed for 1 year, SOP in Feb26, no contribution in FY25, FY26 at RM120m. Hence totalling RM7.2m in FY25 and FY26 revenue of RM466m. Previously RM1b guidance in FY26, now only RM500m.
- MY: Confirmed new models secured in MY, besides fan. Secured 4 more new models. Env Batman and Hulk (SoP May and July).
- Batman (Env), SoP May25, at RM2.6m in FY25 and RM39.5m in FY26m.
- Hulk (Env), SoP July25, FY25 none, FY26 RM69.7m.
- PCBA revenue was at RM80m, now RM30m, PBT last time 15m, now 3m.
- Wonder woman (BT), SOP date Jun25, RM11.5m in FY25, FY26 revenue at RM280m. By Chinese market
- Ironman (FC), SoP date Aug25, no contribution in FY25, FY26 RM420m.
- All in for Batman, Hulk, Wonder woman, Ironman contribute RM14.1m in Fy25 and FY26 at RM809.2m.

Q&A

- 3QFY25 revenue will be impacted by tariff decision, and 4Q will normalise. Should be better qoq but lower YoY. Lower from customer X as well, but ramping up again in 4Q
- FY25: X: initially RM1.85b to now RM1.65m, B initial RM900m to now RM650m at best best, K maintain at RM650m, Z initially RM400m to now RM350m. Indonesia RM350m, other RM300m. All in RM4.1b.
- FY26: revenue to be at least RM5b revenue.
- LSR contribution will come in from FC and BT. Blistering from FC, Tubing from FC.
- Philippines bluesky can do RM2b revenue.
- Worry that if MY tariff is higher than the rest then it will be have impact to the whole landscape.
- Tariff impact – can only wait and see.
- Tariff is based on import date, not production date.
- NPM for accessories >10%. LSR targeting revenue of RM150m in FY25, and >RM200m in FY26, but on console basis.
- At RM400m contribution revenue from PH, it will be profitable.
- Rental RM800k/month from PH.
- Gestation period will be longer in PH, probably more than 3 months.
- Indonesia: Depending on this power meter customer – slight drop in 2Q.
- One more FC model in bidding for MY.
- Mexico – only taken Captain America.
- Announcement: From KPMG from PWC – auditor, wef this year.
- Medical – clean room for PCBA.

Thanks.

MAYBANK Malaysia 2025 Outlook & Lookouts...

Brace up for a volatile year.

- Navigating opportunities and challenges
Navigating Trump 2.0 would be a task in 2025. Although ASEAN will likely not be a priority or a direct target, Malaysia could catch some attention as it has been a beneficiary of trade diversion. Domestically, Malaysia is seeing an investment upcycle wave with non-trade growth engines including tourism, data centres and ASEAN Economic integration as growth supports. We list five themes to play in 2025, mostly centric on consumption and investment realisation. We have a 2025 YE KLCI target of 1,740 (15x 2026E PER), driven mainly by banks, which is our key OW.

- Malaysia Equity: Themes to play in 2025
We lay out five themes to lookout in 2025: (1) External disruptions: We see opportunities in a shift of trade diversion to trade diversification which would benefit manufacturing and tech plays, (2) Domestic secular plays: Hedging uncertainties externally, we see positive trends
to benefit banks, consumer and tourism (incl REITs), (3) State-driven activities: Following through from Johor, Sarawak and Penang where we will continue to see investment action, we would also watch for developments in Sabah, Kedah and Perlis in the energy and EV space, (4) Investment realisation: After receiving strong approved investments since 2023, it is time to reap the fruits of the harvest. We expect positives from tech, construction and industrial properties to spread to second order beneficiaries such as consumer, retail and offices, (5) Corporate restructuring: We expect to see a stepping-up
of GLC reinvigoration given new head honchos on board. Separately, we expect the GEAR-uP initiatives to take
shape in 2025.

- Positioning for 2025: Growth, yields and ESG
We forecast YE 2025 KLCI target of 1,740 (15x 2026E PER), driven mainly by banks, our key OW. We are also OW consumer and healthcare while selectively positive on construction (DC plays), oil & gas (FPSOs) and tech (EMS). Other key sectors such as property, plantations, telcos and utilities are Neutral. Petrochemicals is our only Underweight. Our BUYs are AMMB, CIMB, Gamuda, YTLP, Hartalega, KPJ, VSI, Frontken, Aeon and Solarvest. Top Sells are Lotte Titan, Astro, Tan Chong, BFood and RCE. Top 5 high-yield picks in FY25E-26E are Eco World Int’l, Bermaz Auto, DXN, MBM Resources and Sentral REIT. Not forgetting, our ESG picks are Allianz, Gamuda, IOI, Public Bank and Hong Leong Bank.

$GAMUDA / 5398 (GAMUDA BERHAD)
$VS / 6963 (V.S. INDUSTRY BERHAD)
$SLVEST / 0215 (SOLARVEST HOLDINGS BERHAD)

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by RHB

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by PBIV

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by MAYBANK

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by PBIV

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by MAYBANK

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by HLIB

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by Maybank

Sharing market perspective from broker. Found it useful..

CHINA ROARING BUT MY STILL ATTRACTIVE; RINGGIT DOUBLED EDGED SWORD; FPSO STILL BRIGHT SPARK IN O&G SPACE; ASTRO TURNING AROUND?; PROFIT TAKING FLOWS...

*MY MKT:* *YES, CHINA IS EXCITING AGAIN BUT M’SIA REMAINS THE MARKET TO BE IN =)* In fact, there are many questions remain and execution is key for China esp. fiscally. The capital injections into SOE banks would help but as Michael (CH banks analyst) noted, he’s unsure which segments could *drive loan growth* as households may not be a driver unless *property transactions/consumer confidence* pick up materially. What’s more if demand’s weak, it won’t matter if corporates are given funds while banks may not dare to lend unless they’re absolved of blame for bad debts. Hence, focus on *MY domestic mkt.* though on flows, we see local insti funds are realizing profits.

Yes, ringgit’s strength is a double-edged sword ie. *good for importers but a bane for exporters.* Regardless, seasoned FMs we spoke to aren’t too worried as weaknesses seen in exporters are *short-term knee-jerk* effects. Take *VSI* for instance, stock was beaten down on weak USD as *ASP adjustments are done qtrly.* However, correction is an opportunity to collect instead as eventually, currency differences will be *passed on* while underlying demand for its clients’ *products are healthy.* *SIME’s* position is even *better.* Contrary to mkt. perception, SIME’s a *net beneficiary of RINGGIT gains* due to acquisition of *UMW.* Although *China/industrial* operations have ongoing challenges, thanks to *currency and full UMW* impact, its M’sia based *PBIT contribution will increase* from 24% in ’23 to *60% by ’25,* showing how *accretive UMW is.* Plus, *60% of component costs* are sourced abroad and currency *savings* from this alone flow *straight to EBIT.* All in, with China stimulus, SIME could win on *both* currency and China fronts.

Meanwhile, it’s *not getting better* for O&G services here till better clarity on issues like *Petros/Petronas* and of course, escalating *Mid East* conflict isn’t helping but at least, *FPSO segment* still looks lively. *MISC* looks likely to achieve *first oil for FPSO Mero-3* in the coming days and this a *huge catalyst for 4Q* earnings though this call comes with *caveat* as Petronas *will end 5 x legacy LNG* charters in 27-28 and replace them with charters for *2 x LNG from ‘27* onwards. Basically, it seems *most/all of MISC’s* maturing long term LNG charters with Petronas *will not be extended* for the long haul (20 yr) which Raymond thinks will be a *2-3% negative to earnings.* He’s not worried though as LNG charter *terminations were sort of expected* as other shipping companies can offer *better terms* to Petronas while MISC’s legacy vessels are also *not up to IMO* standards. BUT, MISC now has *orders for 10 x LNG ships* which should more than help *arrest the decline* in LNG earnings from *FY26 onwards* and yes, Mero 3 will be the *driver in FY25.*

Similarly, *YINSON’s* MQ & Atlanta FPSOs will achieve *first oil in Oct and Dec* respectively which is *music to investors’ ears* as this means cash *inflows* from charter hire. Recall, YINSON is a well-run company, in the *right space ie FPSO* and so, its management still wants to take advantage of the *growth* in this segment, but this has come at the *expense of gearing* which has ballooned. So, achieving first oil will boost both *operating cashflows and investors’ confidence* as daily charter hire is paid only when the assets are working.

Finally, *ASTRO,* yes ASTRO just had its *best quarter* in a while *(5 qtrs of decline)* on among other things, *favorable forex impact.* Out of the woods? Hard to say as *rising content costs and adex weakness* persist but encouragingly, bundling/upselling strategies have *driven ARPU* higher. All in, it requires patience when it comes to *ASTRO turnaround* as costs savings are taking *longer* to materialize but at least, the strengthening *ringgit helps* the c.35% USD-based costs, and so, *reinstatement of dividends* could be on the cards which is a rerating catalyst. Hopefully…

$VS / 6963 (V.S. INDUSTRY BERHAD) $SIME / 4197 (SIME DARBY BERHAD) $MISC / 3816 (MISC BERHAD) $YINSON / 7293 (YINSON HOLDINGS BERHAD) $ASTRO / 6399 (ASTRO MALAYSIA HOLDINGS BERHAD)

UOBKH ALPHA PICKS OCT 2014

Sticking to the variety of investment themes, while adding China mega fiscal stimulus plans as an additional catalytic event driver. Our Alpha Picks are chosen to capitalise on foreign equity inflows (which favour selected banks) and near-term alpha events, including more newsflow on Iskandar 2.0 (eg details of the Special Economic Zone), further data centre related land sales, blockchain, e government project awards, M&As (Yinson is widely expected to deeply monetise its FPSO assets) and beneficiaries of China’s mega fiscal stimulus. A notable confidence booster is RGB International’s recent clarification that last year’s Malaysian Anti-Corruption Commission (MACC) assistance case has been resolved.

Meanwhile, concerns of lumpy forex loss for US dollar earners mostly discounted. Although the market has been wary of US dollar income earners needing to recognise lumpy forex translation losses in the upcoming reporting season (given the sharp rise in the ringgit against the USD), we retain RGB International and VS Industry in our Alpha Picks. These concerns have been mostly priced in as reflected in the stocks’ significant share price retreats from their respective highs in Sep 24, while we look forward to fresh re-rating catalysts.

$RGB / 0037 (RGB INTERNATIONAL BHD) $LAGENDA / 7179 (LAGENDA PROPERTIES BERHAD) $MYEG / 0138 (MY E.G. SERVICES BERHAD) $VS / 6963 (V.S. INDUSTRY BERHAD) $YINSON / 7293 (YINSON HOLDINGS BERHAD)

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by RHB

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by CGS
HOLD – TP RM 1.20

"Philippine ops to anchor growth”

■ We raise our FY25-26F EPS by 3-21% and GGM-derived TP to RM1.20 to reflect the group’s expansion in the Philippines for Customer X.
■ While this may present new operational hurdles, its decades of track record and vertical integration should ease its deployment in the Philippines.
■ We believe most of the positives are already priced in, with the stock trading at 18.2x FY25F P/E, close to 1.s.d. above its 7-year average.

Analyst:
Shafiq KADIR
shafiq.abkadir@cgsi.com
Dharmini THURAISINGAM
dharmini@cgsi.com

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by HLIB
BUY – TP RM1.42

" New order win in Philippines”

VSI announced that its wholly owned subsidiary, VS Philippines (VSIP) has entered a lease agreement dated 14 Aug 2024 with ALogis Artico for the lease of factory building located at ALogis Sto. Tomas, Light Industry and Science Park III in Batangas Philippines. The factory has a built-up area of 52.7k sqm which will be utilized to fulfil new orders. The new subsidiary also just secured new orders from Customer X to manufacture selected consumer electronics products on box-build assembly basis which includes provision of end-to-end processes. Based on the guidance, this new contract will lift up its top line by RM300m and RM1.2bn in FY25 and FY26, respectively. We are positive on this development as this serves as a testament of the group manufacturing capability. We increase our FY25/FY26 forecasts by +5%/+23%. After earnings adjustment and rolling forward our valuation year to CY25 (from FY25) our TP increases to RM1.42 (from RM1.22) based on unchanged 18x PE multiple. With the outlook looking more favourable for VSI, we upgrade our call to BUY

Analyst:
Syifaa’ Mahsuri Ismail
syifaa@hlib.hongleong.com.my

$VS / 6963 (V.S. INDUSTRY BERHAD)
Research by Maybank
BUY – TP RM1.46

" Secures MYR1.5b new orders in PH”

We raised FY25/FY26E earnings forecasts for VSI by 4%/21% due to increased contributions from new orders in the PH. VSI announced it will start mass production for this order in 1QCY25, expecting additional sales contribution of MYR0.3b/MYR1.2b in FY25E/FY26E. We lower our PER target to 20.5x (+0.5SD to 5Y mean) from 23x (+1SD), resulting in a new MYR1.46 TP (on revised CY25E EPS), up from MYR1.41. The +0.5SD valuation accounts for potential earnings upside from another new customer expected to onboard by end-CY24, with earnings contribution anticipated in FY26E. Maintain BUY.

Analyst:
Loh Yan Jin
lohyanjin.loh@maybank-ib.com

$VS / 6963 (V.S. INDUSTRY BERHAD)

Titan Trading Notes For Thursday [15/8/2024]:

$KLSE-KLCI resumed its upward momentum, breaking out towards the 1612 points region today, wiping off last Monday's losses from the panic selling wave. Overall market sentiment however remained slow and sluggish as we only settled with a daily trading volume of about 3.5 billion today.

Main stocks that showed strong buying momentum today would be the likes of TOPGLOV, VS, VELESTO, UNIQUE, MALAKOF, MESTRON, SIME, and WCT. All of which were able to sustain their rallies throughout the day.

$VS / 6963 (V.S. INDUSTRY BERHAD) since retracing all the way back towards the RM 0.95+ major support levels, had been able to rebound quite well over the past few weeks here, even breaking out towards the RM 1.24 regions with good volume and buying momentum today.

So far looking quite strong here and as long as able to sustain above its RM 1.15+ immediate support levels on the daily chart, could continue on towards the RM 1.30+ regions soon for an uptrend continuation pattern.

Will be monitoring VS closely here as seems to be on a very strong recovery and uptrend.

$UNIQUE / 0257 (UNIQUE FIRE HOLDINGS BERHAD) on the other hand was also one of the best performers today, breaking out from its RM 0.40 major resistance levels and rallied all the way towards the RM 0.445 regions with huge volume and buying momentum, forming its new all time high here.

For now looking very bullish and as long as able to sustain above its RM 0.42+ immediate support levels, could continue on towards and beyond the RM 0.45++ regions soon for an uptrend continuation pattern.

Will be monitoring UNIQUE closely here as seems to be starting a strong uptrend wave.

GOHUB on the other hand also had been consolidating over the past few weeks here with RM 1.25+ as the main downtrend resistance levels here on the hourly and daily charts.

So far had been able to form higher lows along the way and as long as able to hold above its RM 1.10+ main uptrend support levels, could continue on towards and beyond the RM 1.25+ regions soon.

Will be monitoring GOHUB closely here

$VS / 6963 (V.S. INDUSTRY BERHAD): Philippines Expansion

Here are some key points from RHB regarding VS's expansion in the Philippines:

1. Strong Earnings Growth: VS’s impressive 3-year earnings CAGR of 28% will be driven by significant market share gains through its expansion in the Philippines, progressive contributions from newly developed capabilities, and new opportunities arising from the trade war diversion.

2. Strategic Opportunity: VS's management sees this expansion as a strategic opportunity to grow its market share with Customer X. They believe their superior expertise and track record will minimize execution risks. The initial stage will adopt an asset-light model, resulting in lower fixed costs and a lower sales threshold (MYR300m) to breakeven. Additionally, an equity raising exercise to generate up to MYR534m has been initiated to fund the estimated MYR400-500m capex and working capital requirements.

3. Upcoming Results: The results of new job tenders by Customer X are expected by August/September 2024.

4. Earnings Impact: RHB anticipates a muted earnings impact in FY25F, with initial start-up losses in 3QFY25F offset by maiden earnings in 4QFY25F, leading to an 18% increase in FY26F earnings as they pencil in MYR900m in sales from the Philippines operations. Consequently, their target price rises to MYR1.49, based on an unchanged 19x 2025F P/E and includes a 2% ESG discount.

Personal Supplement:

1. Identifying Customer X: Customer X could potentially be a US company, as the US is currently VS's second-largest revenue contributor. Additionally, US companies announced over $1 billion in investments in the Philippines earlier in 2024. It could also be Dyson, as the Philippines lacks mature EMS manufacturers, and Dyson has been a client of VS. Notably, Dyson announced in 2023 an investment of US$194 million in a new Philippine factory over the next two years.

2. Revenue Projections: Based on RHB's projection of MYR900 million in revenue, future revenues could potentially reach RM5.5 billion, not accounting for potential growth from current customers. Assuming a profit margin of 3.9%, the net profit could be RM214.5 million.

Changes in Director's Interest (Section 219 of CA 2016) - MR CHONG CHIN SIONG

DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : Dealings Outside Closed Period

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EMPLOYEES PROVIDENT FUND BOARD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - KUMPULAN WANG PERSARAAAN

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EMPLOYEES PROVIDENT FUND BOARD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - KUMPULAN WANG PERSARAAAN

DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : Dealings Outside Closed Period

Changes in Director's Interest (Section 219 of CA 2016) - DATUK GAN SEM YAM

Changes in Director's Interest (Section 219 of CA 2016) - NG YONG KANG

Additional Listing Announcement /Subdivision of Shares

DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : Dealings Outside Closed Period

Changes in Director's Interest (Section 219 of CA 2016) - DATO GAN TIONG SIA