VS: Strong Malaysian Performance Drives Earnings Outperformance, Rating Upgraded

A leading electronics manufacturing services (EMS) provider reported a 2.8% year-on-year increase in its core net profit to RM33.7 million for the first quarter of financial year 2026 (1QFY26). This performance was broadly in line with expectations from both the investment bank and the wider market, accounting for approximately 30% and 26% of their respective full-year estimates. Despite the positive profit growth, revenue for the quarter saw a modest decline of 2.9% year-on-year, settling at RM1.08 billion.

Performance Review

The notable increase in core net profit was primarily attributed to higher order volumes and the absence of one-off impairments during the quarter. The Malaysian operations demonstrated robust growth, with a significant 25% year-on-year increase in both revenue, reaching RM1 billion, and pre-tax profit (PBT), which rose by RM9 million. This strong domestic showing effectively mitigated weaker contributions from Indonesian operations, where revenue fell 30.7% year-on-year to RM77 million, and PBT declined by a substantial 69.4% year-on-year.

On a quarter-on-quarter (QoQ) basis, the group exhibited a strong recovery, with revenue climbing 25.6% due to higher sales orders from key customers. Critically, the company swung from a core net loss of RM30.1 million in the preceding quarter to a core net profit, further bolstered by the reversal of impairment losses on trade receivables and plant and equipment.

Future Outlook and Challenges

The outlook for order flows is expected to gradually improve, benefiting from increased clarity following the finalization of Malaysia’s reciprocal tariff rate at 19%. This rate is broadly comparable with other ASEAN manufacturing hubs, providing a stable operating environment. Encouragingly, customer orders showed improvement in 1QFY26, with several new models entering mass production. Furthermore, the recent interest rate cut in the United States offers some relief, potentially supporting a gradual improvement in demand conditions.

Despite these positives, the report acknowledges that recovery in earnings may take time, given the company’s high customer concentration in the US and the backdrop of a softer US economy. The group, however, remains committed to reinforcing profitability through continued focus on lean production, operational efficiency, and disciplined cost control.

Analyst Recommendation

In light of the recent share-price pullback which has materially improved the stock’s risk-reward profile, TA SECURITIES has upgraded its rating for the stock from Neutral to Trading Buy. The target price remains unchanged at RM0.59, based on 17x CY26F EPS.