For QE31/10/2016, VS's net profit rose by 206% q-o-q but dropped 44% y-o-y to RM34 million while revenue rose 22% q-o-q & 11% y-o-y to RM680 million.
Table 1: VS's last 8 quarterly results
The Group's profits rose q-o-q mainly due to higher sales contributed by the Malaysia operations and the absence of impairment loss.
1. Malaysian operation recorded a lower profit before tax mainly owing to high initial start-up cost incurred in preparation for the upcoming substantial box built order anticipated from a key customer.2. China operation recorded a higher due to lower sales and higher raw materials incurred arising from a weaker RMB against USD during the period under review.
Table 2: VS's segmental results
Graph: VS's last 47 quarterly results
VS (closed at RM1.38 last Friday) is trading at a trailing PE of 18 times (based on last 4 quarters' EPS of 7.83 sen). At this PER, VS is deemed fully valued.
VS had a strong rally from a low of RM0.25 in late 2013 to a high of RM1.60 in late 2015. Since then, it has been consolidating at around RM1.40.
Chart 1: VS's monthly chart as at Dec 23, 2016 (Source: ShareInvestor.com)
The question is whether VS has peaked in 2015 like it did in early 2000 & late 2007 (see Chart 2). Unlike the past 2 instances, VS seems to be climbing back up after the peak. Is this due to better earnings as a result of favorable forex movement or is it due to new orders in the pipeline.
Chart 2: VS's weekly chart as at Dec 23, 2016 (Source: ShareInvestor.com)
Based on weaker financial performance (albeit a slight recovery), demanding valuation and prior sharp price run-up, I would maintain VS as a SELL INTO STRENGTH. However, if its earnings continue to grow- from the new large orders- I may revise my rating accordingly.
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