VS: Manufacturing Firm Navigates Headwinds, Analysts Maintain ‘BUY’ Rating

Despite facing immediate challenges such as uncertainties from US tariff policies and softer utilization rates, a prominent manufacturing firm is seen to possess resilient fundamentals, prompting analysts to maintain a positive outlook. The upcoming fourth-quarter FY25 results, anticipated to show a core net profit below MYR5 million due to deferred shipments and margin erosion, are largely considered to be already priced into the stock’s recent performance.

Performance Review and Challenges

The company has contended with a notable drop in production throughput, affecting approximately 60% of its sales to the US market, as customers adopted a cautious “wait-and-see” approach ahead of a final tariff decision. This production dip, coupled with the business’s high fixed-cost nature, is expected to lead to significant margin erosion in its latest quarterly performance. Furthermore, analysts have revised down the company’s FY25F-27F earnings by 39%, 18%, and 23% respectively. These adjustments reflect more conservative volume assumptions and lower gross profit margins attributed to softer utilization rates and global trade tensions.

Future Outlook and Strategic Strengths

Looking beyond the near-term hurdles, management checks indicate no loss of key customers or major shifts in business fundamentals. The company is experiencing a resurgence in volumes, driven by favourable year-end seasonality and new product launches. Opportunities abound as more brand owners seek to diversify production sources in response to US tariff dynamics, potentially leading to new order acquisitions. The smooth operational ramp-up of its Philippines facilities and progressive in-house parts production further strengthen its position. Analysts highlight existing investment merits, including market share gains with a key customer and strategic opportunities arising from trade diversion, which are expected to benefit Malaysian players structurally in the long run.

Investment Recommendation

In light of the revised earnings outlook and the risks associated with slowing global demand, the target price has been adjusted to MYR0.78, down from MYR0.99, based on a lower 15x 2026F P/E multiple (previously 17x). Despite the revisions, the investment bank reiterates a BUY recommendation, noting that the current depressed valuation undervalues the company’s long-term potential and inherent strengths.