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VS Industry (VS, 6963) sees positive outlook for EMS

“We will continue to enhance our operational flexibility to minimise the adverse impact on our business operations. By doing this, we hope the positive trend will continue and ultimately, improve our bottom line, ’’ said VS Industry managing director Datuk Gan Sem Yam.(pic)

FOLLOWING the reopening of economies, a number of companies are struggling to get up on their feet again and move forward with their plans.

Many are picking up on negotiations that were stuck due to the lockdown, and resuming work with priorities on safety and health as well as further digitalisation and automation.

I will be looking at companies that are picking themselves up and one such company is VS Industry, which has resumed work especially at its loss-making China operations, for which it expects losses to be lower this financial year (FY) compared with the previous year.

And it is just waiting to be able to travel overseas to resume talks with potential customers who want to divert their operations to Malaysia, resulting from the US-China trade war last year. It still sees a bright future for the electronics manufacturing services (EMS), especially with opportunities from trade diversion, and as consumer spending and demand for consumer appliances pick up.

With its forte in manufacturing household appliances, this will benefit the group.

Under-utilisation of its facilities in China continues to be a challenge, but new orders are coming in gradually, and so far, contrary to market talk, VS Industry has not seen their customers shifting orders to other contract manufacturers in China. The group significantly reduced losses incurred from the China operations in the first half of FY20, where loss before tax stood at RM6.5mil compared with RM24mil in the same period of FY19.

“We will continue to enhance our operational flexibility to minimise the adverse impact on our business operations. By doing this, we hope the positive trend will continue and ultimately, improve our bottom line, ’’ said VS Industry managing director Datuk Gan Sem Yam.(pic)

So far, the pursuit of an asset-light model, where a business owns relatively fewer capital assets compared with the value of its operations, has been effective for its China operations. The China operations, under VS International Group, is listed on the main board of the Hong Kong Stock Exchange, providing complete EMS. Operations in Zhuhai, China, had stopped for the Chinese New Year holiday from Jan 25 to 30,2020, and were only allowed to resume on Feb 17,2020, due to the virus outbreak.

In FY19, the group’s China operations contributed RM388.1mil, or 12%, of the group’s total turnover. Following the resumption of work, the group has been clearing the backlog of orders; it has operations in Malaysia, China and Indonesia.

From trade diversion flows, the group has secured a relatively sizeable customer and a few smaller customers.

Prior to the movement control order (MCO), it was in active discussions, some of which were at an advanced stage, with several potential customers, mostly multinational corporations. The group is awaiting restrictions especially on international travel, to be lifted, and will be travelling to meet these potential customers to better understand their needs, while they too can visit its facilities to “really appreciate our capabilities.’’
VS Industry plant
VS Industry plantVS Industry plant

VS Industry sees a positive outlook for the EMS sector as there are still opportunities for further expansion, especially in Malaysia, which will continue to be the main revenue driver.

The challenges thrown by the pandemic are short term problems that the group is confident it can overcome, especially given its experience, track record and solid balance sheet with high cash holdings.

“The outlook in the longer term remains intact and bright, ’’ said Gan.

Post-lockdown, there are some encouraging signs in China where consumer spending is slowly picking up. In Malaysia, where more restrictions are lifted under the recovery movement control order, Gan sees that consumer spending may normalise in 12 to 18 months.

As population and and consumer affluence grows, upon normalisation, post Covid-19, this demand for consumer appliances will also increase; replacement and upgrading cycles will also boost demand. As an export-oriented manufacturer, the group uses forward hedging contracts from time to time to hedge its foreign currency exposure, and also benefits from some natural hedges as part of its sales and purchases are denominated in US dollars.

For some customers, it transacts in ringgit while its cost is denominated in US dollars, while for others, the sales and cost are both in US dollars. Given the uncertainties, it is hard to predict the ringgit trend, “we will just have to adapt and be nimble in our decision making process, regardless of the foreign exchange rates.

The pandemic has forced the group to think harder on its digitalisation efforts; it is already conducting its marketing activities and organising meetings via online conferencing tools.

“We are assessing the avenues where we can improve further, as well as the need to adopt changes to our business model, ’’ said Gan.

At this juncture, the core of the manufacturing business still requires the physical presence of workers, for example, in assembly processes as well as equipment and machine handling.

However, the group is digitalising activities where feasible, such as in implementing real-time production status monitoring, inventory management systems, online production reporting and production scheduling.

With the economy reopening, the group’s priority is to ramp up production, be in close communication with its clients and ensure that its prospects remain positive; all these are important measures to ensure that it can continue to keep all its employees.

In Malaysia, VS Industry has a 7,000 strong workforce, and groupwide, about 10,000; with various existing inhouse talents, its hiring decisions will depend on customer requirements.

The group is assessing the feasibility of arrangements such as flexible working hours and work from home (WFH); the MCO has forced it to implement WFH arrangements for non-production, floor employees, as well as to adopt technologies that facilitate such arrangements. “Investment in our employees, IT infrastructure, digitalisation and automation will all carry on, ’’ said Gan.

In a way, the pandemic and the subsequent lockdown may force companies towards higher efficiency, at the same time, employee welfare has taken top spot.

Columnist Yap Leng Kuen sees the courage and persistence shown by companies caught in the pandemic. Views expressed here are her own.

https://www.thestar.com.my/business/business-news/2020/06/16/vs-industry-sees-positive-outlook-for-ems
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