Current qtr VS has reported a decrease of RM 158.7mil or 16% in revenue as compared to the previous year corresponding qtr. The reason been explained by the group was due to lower sales orders from key customers.
Align to the contraction in the revenue, PBT was also decreased 11.9% or RM 5.9mil to RM 43.5 mil. The qtr report said the improved earnings for the cumulative qtrs was mainly attributable to much smaller losses from the operations in China which shifting into an asset light and low cost model.
Inventories, receivables and cash equivalents have slightly reduced during this qtr, same goes to loans, borrowings and payables. Company financial still remain healthy.
Malaysia segment recorded a lower revenue compared to preceding year corresponding quarter mainly due to lower sales orders from key customers which had also affected its PBT.
Indonesia segment had achieved higher revenue, but PBT reported loss making. The group explained that it was mainly due to less favorable foreign exchange rate. I presume it was due to the continue descending on exchange rate from Rupiah to RM. For the cumulative quarters, Indonesia segment continued to incur loss largely owing to under-utilization of production capacity. In fact, the later explanation has more weight on causing business in loss making.
Q4 FY19 Indonesia segment was making good PBT which the revenue reported was slightly higher than Q2 FY20 by 7%. However, PBT had drastically dropped by 180%!
China segment recorded lower revenue as a result of lower sale orders completed. Losses narrowed significantly for the cumulative quarters due to lower operating expenses incurred following streamlining activities and adopting an asset-light model with lower gearing structure.
Company Prospects:
Orders expected to slow in coming months. Management has highlighted that "the operating environment has been challenging amidst the ongoing US-China trade tension and slowdown in global economy. The COVID-19 outbreak since January 2020, which has now turned pandemic, has further put much dampener on both local and global markets affecting trade activities and movement of people worldwide. "
The supply chains to VS from China are expected to delay as suppliers are now resuming operations in mid February 2020. Meanwhile, on the demand side, outlook for the next few months appears uncertain at this juncture.
Discussion with prospective customers have also been held back, in view of the travel caution and restriction. In addition, VS said the Movement Control Order (MCO) implemented by the Government that is in place from 18 March 2020 to 1 April 2020 (subsequently extended to 14 April 2020), is expected to cause further impact on its operations.
In the prospects, the group has also pointed out that the financial performance of current year is expected to be lower than the previous year.
Technical Analysis:
I reckon that EPS for FY20 will reduce to around 6.35sen which is around 27% dropping compared to preceding year EPS at 8.75sen.
- Q3 FY20 financial performance will be the worst ever, VS operation will be badly affected by MCO implemented for 28 days by the time of this writing. Management didn't mention whether can VS operate during the MCO period as it might fall under E&E category and should be able to operate with half force.
- Europe and US major city lockdowns and movement restrictions will have significant negative impacts on customers' sales as normal daily activities are being disrupted.
- Severe slowdown on economy and buying power.
- Q4 FY20 will be facing lower revenue as Raya festival will fall in that quarter.
Assuming the PE = 8 at the end of FY20. The target price should be RM 0.51.
Stock price has trended down since early of Feb when Covid-19 outbreaks. Price has declined for 51% from Rm1.50 until now RM 0.725. The next support line is around RM 0.655, the previous lowest point during the end of 2019. I will use Fibo method to trace the rebound momentum to find the next support and resistance points.
