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V.S. Industry Berhad (VSI), an integrated electronics manufacturing services (EMS) provider based in Malaysia, has reported a revenue of RM680 million for the quarter ended October 31, 2016 (Q1 FY2017), an increase of 11% as compared to the previous corresponding quarter. Profit before tax stood at RM45.5 million, down by 39.2% over the same period.
The lower earnings for the current quarter was mainly attributable to high initial start-up cost incurred by the Malaysian operations in preparation for the upcoming substantial box built order for the second half of the financial year 2017. In addition, the group also registered net foreign exchange loss of RM0.4 million in the current quarter against net foreign exchange gain of RM14.6 million in the preceding year’s corresponding quarter.
The group's Malaysia operations recorded an increase of 17% or RM73.8 million in revenue for the current quarter as compared to previous corresponding quarter due to higher sales orders from key customers. However, lower profit before tax of RM45.4 million was recorded in the current quarter as compared to RM72.8 million previously, mainly owing to high initial start-up cost incurred in preparation for the upcoming substantial box built order anticipated from a key customer.
To further elaborate, close to 1,000 new foreign factory operators were hired in the current quarter. Arising from the new hiring, the hiring agency costs, foreign employee levies, training costs and salary costs were incurred. At the same time, the corresponding revenue stream from this batch of workers would only commence gradually from second financial quarter onwards. Apart from increased salary costs, hiring and training costs, the Group also incurred some setup costs in preparing the plant for the forthcoming new orders.
The Indonesia segment continued to perform well, and recorded higher profit before tax in tandem with higher sales orders from key customers.
VSI's China segment recorded higher loss in the current quarter against the preceding year's corresponding quarter due to lower sales and higher raw materials incurred arising from a weaker yuan (RMB) against the US dollar during the period under review.
Following the award of the vertical integration status by the group's key UK-based customer in May 2016, the group expects to gradually receive much more box built orders which on a collective basis are expected to contribute to substantial growth in revenue. However, in the initial period, the group would incur some costs as explained above. In this respect, the company expects to perform much better in the second half of financial year 2017 as the production volume and efficiency will pick up.
On its China operations, the group expects improved performance going forward as it has since commenced mass production of a new product for a key customer in China and this contributes to higher plant utilization rate.