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I attended VS AGM on 3 Jan 2020 in Hotel Jen, Johor Bahru. I was
expecting a lot of shareholders, but the attendance was not up to my
expectation. But i do saw a lot of young investors, which i think it is a
very good sight.
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| VS 37th AGM |
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| Before AGM starts |
Here are some of the important points that i managed to gathered
through the AGM and through the conversation with Managing Director,
Dato Gan. I will summarize it in the point form.
1. VS main revenue stream derived from 3 key operations:
a) Plastic injection & moulding
b) Printed Circuit Board (PCB) and battery pack assembly
c) Box-build assembly -> with lowest profit margin due to higher raw
material. VS strategize to improve the gross profit margin with the effort of automation,
investing in new and more advanced machineries as well as sourcing and
minimizing waste. For the plant almost all the automation that can be
done had already been done. VS's benchmark for automation is if the
automation cost is not able to cover the 3 years of labour fee for that
particular part, then automation will not be done.
2. VS have 12 facilities in Malaysia with 1.7 million square feet, with the average utilisation rate of 80% (excluding
2 new plants). One of the 2 plants is new and ready for new business,
while production has just recently commenced at the other plant with
utilization expected to pick up over the next 6-12 months.
3. While in China, VS have 6 facilities with 1.5 million square feet with the plant utilisation rate of below 40%.
The reason of low utilisation is due to lack of sizeable order which
resulted in lack of economies of scale. VS have been restructuring and
streamlining the operations and adopting an asset-light model to
minimise the impact on the business operations. Numbers of staff had
been downsized from 3 thousands to 1 thousand in the past 1 year.
4. In Indonesia, VS have 1 factory with 247,000 square feet and currently utilising at below ideal level due to a change in product mix in 2019.
5. The revenue contribution from Malaysia (84%), China (10%) and
Indonesia (6%). The main reason is due to trade war and local customers
in China are adopting a wait-and-see attitude. However, VS management
see the impact of trade war as a positive move for them but a long patience is required. Even in the AGM, the management keep on mentioning about the investors need to be patient. And in my conversation with Dato Gan, he also mentioned the investors need to be patient.
6. VS is serving a wide different clients in Malaysia, Indonesia and
China. In general, VS manufacture a wide range of mainly home appliances
such as floor care products, beverage machines, pool cleaning systems,
beauty care products.
7. With Bissell emerging as one of the main clients for VS, VS have
commenced mass production for 1 model in September 2019 and started
delivery of the products in October 2019. The utilisation rate for
dedicated plant for Bissell is picking up. Bissell's 2nd and 3rd product
will be selling in March 2020. Now, Bissell confirmed 5 models will be
manufactured by VS and VS is eyeing a double digit percentage in revenue contribution in future.
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| Bissell Products |
8. VS currently investing in Seeing Machines Limited (SML), ,Velasa Sports Inc and Qingdao GS Electronics Plastics Co Ltd.
a) Great potential are spotted in SML products - Advanced Driver
Monitoring Systems [1]. Basically SML recently landed a contract to
install its artificial intelligence (AI)-powered driver monitoring system,
known as Guardian across the fleet of one of Canada's largest haulage
companies, Bison Transport. [2] VS will be benefiting from SML as and
when the production hits critical mass volume, VS will surface and serve
as the manufacturer of the system. VS had invested RM86 Mil in SML.
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| Seeing Machines website |
b) Velasa Sports from US is the company behind an innovative and
patented portable skate sharpener. Currently VS is manufacturing the
skate sharpener and high market growth potential for the portable skate
sharpener. VS had invested RM5 Mil in Velasa.
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| Portable Skate Sharpener patented in US by Velasa Sports |
c) As of the investment in China Qingdao GS, the buyer will be
acquiring the balance of 10% stake from VS in 2020. The rest of 90% had
been disposed in Jan 2018. VS will be expecting RM3 Mil from the disposal of the 10% Qingdao GS.
9. The current trade receivables stood at a very healthy level of 84 days.
10. EMS business have a very low profit margin. However, VS assures that their competitive advantage is higher if compared to other EMS player due to their vertical integration strategy.
They are independent and they rely lesser on the supplier. For most of
their products, they are able to produce the end products without any
worries.
11. Due to NDA (Non Disclosure Act), VS is not allowed to expose the customer's name. But Dato Gan had reassured that the special business development taskforce are actively seeking for new customers just like they had sourced Bissell.
12. VS had a few customers in their radar currently. For their normal process, they will be assessing the customer's products acceptance rate before they will sign a deal with the customers.
Dato Gan mentioned to me that rest assured as they are now evaluating
the products. He did not want the company to produce a product that is
not widely used by the public.
13. Due to political reasons and some other factors, some institutional
investors had sold off VS shares. Based on my checking in the Annual Report 2019, currently, 7 local fund houses and 7 foreign institutional had invested in VS.
I guess that is all i want to share. My extract above is combined
between the conversation with Dato Gan, from my Q&A in the AGM and
also the questions from MSWG. If there are any discrepancies in the
information, please do clarify with me by PM me in my FB.
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| VS Daily Chart |
No surprise on VS after the AGM on 3 Jan 2020. Maybe the wait for 2 years does not excite the shareholders. Currently VS's resistance is at 1.38 with the support at 1.30.
We can see there is an uptrend channel for VS and they managed to climb
back from their lowest point at around 0.6. In one year time, they
managed to recover 100%. With 0.8 sen of dividend on 16 Jan and 1.0 sen of dividend on 17 Feb respectively,
and the volume is getting narrower, a lot of investors will be waiting
for the next Quarter result which will be announced in March 2020.
However, i am aligned with Dato Gan's view. I will stay patient and
wait for VS to bear fruit. While VS is focusing at their business and i
maintain my BUY REASON, as long as the reason is still there, it is
worth to hold VS.
Lessons Learnt from VS AGM:
1. I know about the existence of MSWG (Minority Shareholder's Watch Group). Take a look at what they do. You will be amazed. http://www.mswg.org.my/
2. Both Datuk Gan and Datin Gan are very grateful to the shareholders.
3. Be patient and all your time will reward you in the future. (1 to 2 years)
If you want to learn more about stock investment, please feel free to drop me a message in my FB page or you can PM me.
If you like my way of analysis and you haven't join me in my facebook, appreciate if you could like my FB page, https://www.facebook.com/gainvestor10sai/?fref=ts
Thank you^^
Let's Ride the Wind and Gainvest
Gainvestor 10sai
5 January 2020
11.20pm
Sources:
[2]: VS Annual Report 2019.
[4]: Bissell website: https://www.bissell.com/
https://klse.i3investor.com/blogs/gainvestor10sai.blogspot.com/2020-01-05-story-h1482035688-VS_AGM_3_Jan_2020.jsp
