VS: Robust Outlook and Operational Gains Drive Reaffirmed ‘BUY’ Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.65 (+41.3%) |
| Last Traded | RM0.46 |
| Recommendation |
Despite a softer-than-expected start to the fiscal year, a leading investment bank has reaffirmed its “BUY” rating, citing strong future growth catalysts and improved operational efficiencies. While first-quarter earnings for FY26 fell below consensus forecasts, a significant quarter-on-quarter rebound and positive long-term prospects underpin the maintained optimism.
Performance Review
For the first quarter of FY26, core net profit registered RM26 million, marking a 16% year-on-year decline and falling short of both the investment bank’s and consensus forecasts by 17-20%. This miss was attributed to a milder-than-expected volume recovery and a slower overall pace of rebound. Revenue for the quarter also saw a marginal 3% year-on-year dip to RM1.1 billion, partly due to a 31% reduction in sales from Indonesia.
However, the quarter witnessed notable operational improvements. Gross Profit Margin (GPM) inched up by 0.1 percentage point to 7.7%, driven by enhanced operational efficiency and a more favourable product mix that effectively countered the topline softness. On a quarter-on-quarter basis, revenue demonstrated a sharp 26% rebound, recovering from order deferments experienced in 4QFY25 ahead of a final US tariff decision. Furthermore, the company initiated new production lines for key customers in 1QFY26, leading to higher utilisation rates and a significant narrowing of losses from its Philippines operations (to RM9 million from RM20 million). Losses from HT Press Work were also halved to RM2 million, propelling an earnings turnaround from the previous quarter’s losses.
Future Growth Prospects
Looking ahead, while 2QFY26 may experience slower earnings momentum due to seasonal factors, volumes are anticipated to pick up robustly in 2HFY26F. The investment bank expects the Philippines operations to continue narrowing losses and potentially break even by the end of FY26, bolstered by the commencement of a second production line in December and the progressive ramp-up of upstream parts production. Management has indicated that the Philippines plant’s production yield and efficiency are meeting customer requirements.
In Malaysia, new production lines are scheduled to commence in 4QFY26, and a newly secured pool cleaning customer, expected to contribute RM300 million annually, will begin contributions from March 2026 onwards. These factors collectively point towards a robust earnings jump in 2HFY26F, underpinned by market share gains with a key customer, ongoing expansion in the Philippines, and new orders stemming from trade war diversion opportunities.
Investment Rationale and Risks
Given the positive outlook and internal improvements, the investment bank maintains its “BUY” recommendation with a new target price of RM0.65, representing a substantial 41.3% upside from the last traded price of RM0.46. The valuation is based on an unchanged 15x P/E, which is slightly above its five-year mean and at a premium to a close peer. Key risks to this recommendation include weaker-than-expected global consumer demand and the potential loss of key customers.