VS: Earnings Rebounded Somewhat

Result Update

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

Q-o-Q Comparison

The Group's profits rose q-o-q mainly due to higher sales contributed by the Malaysia operations and the absence of impairment loss.

Y-o-Y Comparison 

The Group's profits dropped y-o-y due to:

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

Valuation

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.

Technical Outlook

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)

Conclusion

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. 

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.