VS Industry Bhd, an electronic manufacturing services (EMS) provider, is allocating RM47.55mil (US$15mil) in capital expenditure over the next two years to further strengthen its operations in Indonesia.
Managing director Gan Sem Yam said Indonesia offered good long-term prospects for the company as the republic was now becoming a darling for many foreign investors.
He noted that Indonesia managed to weather economic recessions in 2008 and 2009 and was among a few countries in the world that recorded growth despite the unfavourable economic scenario.
“The capital expenditure will help us to better position ourselves as a leading EMS provider in Indonesia,'' Gan told StarBiz after the company's AGM.
He said the allocation would be used to set up its second factory for plastic injection moulding-related activities in that country.
Gan said works on the new plant located on a 2.5ha site in Jababeka Cikarang industrial area, Bekasi, would start either in May or June.
The company's first Indonesian factory, which comes under PT VS Technology Indonesian, is just two kilometers away from the proposed new facility.
The existing factory is involved in surface mounting technology-manufacturing activities.
Executive director Ng Yong Kang said the second factory would position the company as an intergrated EMS provider and would serve its existing clients in Indonesia while attracting new ones.
“Indonesia is a good place for foreign investors as the cost of doing business is relatively lower compared with some countries in the region,'' he said.
Ng added that many Indonesians were already skilled as they had previously worked in Malaysia; hence they did not have to go through much training.
VS Industry is one of the top 50 EMS providers in the world with manufacturing facilities in Malaysia, China, Indonesia and Vietnam. It serves multinational companies from Europe, Japan and the United States.
For the financial year ended July 31, 2011 (FY2011), the company registered RM27.72mil net profit on RM1.02bil revenue against RM24.29mil and RM800.17mil respectively in FY2010.
Despite the rosy outlook on its Indonesian operations, RHB Research Institute has maintained its “underperform” forecast for VS Industry and a fair value estimate of RM1.40 per share based on six times calendar year 2012.
“We believe the near-term outlook remains challenging, stemming from weaker consumer spending amidst the macroeconomic headwinds.
“However, we believe the new contribution of Keurig (coffee brewers) should partly mitigate weaker sales from existing customers (like NextWindow and Dyson),” it said.
“Furthermore, in the longer term, we believe VSI Industry could benefit from rising demand for outsourcing manufacturing capabilities.”
The company reported a core net profit (profits from operations) of RM9.6mil in its first quarter of FY2012, a 26.2% year-on-year drop that was within RHB Research's expectations.
It added that the core net profit grew 29.1% quarter-on-quarter while revenue increased 7.5%.
VS Industry has declared an interim single-tier dividend per share of 5 sen, compared with 2 sen a year ago.
“Assuming no other dividend is declared, this translates into a net payout ratio of 93.5% and net yield of 3.2%,” the brokerage said.
RHB Research's forecast dividend per share for FY2012 is 10 sen, translating into a net payout ratio of 45.8% and net yield of 6.4%.
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