KUALA LUMPUR: VS Industry Bhd’s (VSI) labour shortage woes are expected to remain for the remainder of its current financial year ending July 2022 (FY22), despite efforts being made to beef up its workforce.

       Hong Leong Investment Bank (HLIB) Research in a report yesterday said recruitment expenses could sum up to around RM30mil, which is expected to be fully incurred in FY22 and subsequently claimed from customers.

       “We understand that, if the recruitment process goes as planned with the 3,700 foreign labour quota allocated, VSI would be able to ramp up their operations by 40%,” it said.

       VSI is engaged in manufacturing, assembling and sale of electronic and electrical products, as well as plastic moulded components and parts.

       On another point, HLIB Research noted that VSI’s i-Park Senai Airport City facility had started production since August 2021.

       “Currently running at suboptimal capacity of 20%, the utilisation is only expected to ramp up once the required labour comes in.

       “The revenue guidance looks healthy at RM300mil for FY22 and RM800mil for FY23. We reckon that this could be one of the biggest revenue contributors once the production starts to ramp-up fully.”

       HLIB Research said VSI’s operations are currently running at full workforce capacity, adding however that it is still unable to fulfil the total orders demanded from its customers.

       “We believe that once international borders reopen, the discussions will be more productive with several potential clients already conveying interest to visit the group’s factories.”

       VSI’s net profit for the second quarter ended Jan 31, 2022 fell to RM44.49mil from RM63.79mil in the same period last year.

       Revenue increased to RM1.01bil from RM999.31mil a year ago.

       The reduced profitability was due to increase in labour and raw materials costs, as well as higher depreciation incurred from new facilities while mass production for a new key customer had yet to achieve optimal levels.

       In its notes on its second quarter performance, VSI said the current challenging operating environment brought about by the Covid-19 pandemic and geopolitical uncertainties, among others, are expected to prevail.

       “Various issues such as shortages in labour, component parts and shipping containers continue to plague many industries globally, including electronics manufacturing services.

       “This has resulted in a rising cost environment with pressure on profit margins.”

       On a positive note, VSI said overall demand by customers remains strong and is largely expected to sustain in the coming quarters.

       “Mass production for the new key customer is expected to ramp up once the labour sufficiency issue is resolved,” it said.

       HLIB Research meanwhile said it is maintaining a “buy” call on the stock, with a lower target price of RM1.21.

       “We trim our FY22 and FY23 earnings per share forecast by minus 21% and minus 13% respectively, after baking in lower top line and margin challenges in the near-term.”