VS: Earnings Dropped

Result Update

For QE31/1/2016, VS's net profit was mixed - dropped by 54% q-o-q but rose 50% y-o-y to RM27.5 million - on the back of similar movement in revenue- decline of 18% q-o-q but increase of 8% y-o-y to RM501 million. VS's PBT dropped q-o-q due to lower sales contributed by the Malaysia operations and net forex losses of RM1.765 million (as compared to a net forex gain of RM14.608 million in QE31/10/2015) and allowance for slow moving inventories of RM2.905 mil.


Table: VS's last 8 quarterly results


Chart 1: VS's last 44 quarterly results

Valuation

VS (closed at RM1.26 yesterday) is trading at a trailing PE of 8.4 times (based on last 4 quarters' EPS of 14.96 sen). At this PER, VS (a cyclical stock) is deemed fairly valued.

Technical Outlook

In September last year, I cautioned that the share price could be trading at a high as VS's earning could have peaked (here). The share price continued to rise and made a high of RM1.69 in December. Since then, the share price has dropped back quite significantly. It broke the 40-week EMA line. With this breakdown, the uptrend for VS is over for this cycle.


Chart 2: VS's weekly chart as at Mar 28, 2016 (Source: ShareInvestor.com)


Chart 3: VS's monthly chart as at Mar 28, 2016 (Source: ShareInvestor.com)

Conclusion

Based on weaker financial performance, a potential peak in earnings and a breakdown of its uptrend, I think it is time to reduce our position in VS.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, VS.