VS Industry Bhd (VSI) is anticipated to experience a recovery in sales in the financial year 2027 (FY27), supported by pre-festive inventory buildup and a turnaround in its Philippines operations, according to recent analyst reports. However, sustained order growth remains uncertain amid ongoing macroeconomic challenges and competitive pressures.

For the fourth quarter of financial year 2026 (4Q26), VSI posted a core profit after tax and minority interest (PATAMI) of RM19.5 million, a notable improvement from a core loss of RM38 million in the preceding quarter (3Q26). This brought the full-year 2026 (FY26) core loss after tax and minority interest to RM21.5 million, a narrower loss compared to the RM38.8 million core profit recorded in FY25. The results exceeded both in-house and consensus expectations, which had forecasted full-year net losses of RM49.4 million and RM32 million, respectively. The stronger performance was attributed to higher-than-expected sales to key brand owners that enhanced operating leverage across VSI’s operations. These figures exclude RM33.3 million in exceptional items mainly related to property, plant, and equipment (PPE) impairment charges and gains on PPE disposals.

Analysts from Hong Leong Investment Bank (HLIB) highlighted a potential profitability breakthrough for VSI’s Philippines division, boosted by the commencement of production for a third product model for Customer X starting in July 2026. Despite this development, demand beyond the festive season remains uncertain amid global economic uncertainty and increased competition from Chinese manufacturers.

HLIB also pointed to potential cost pressures stemming from Malaysia’s Budget 2027, which proposes a minimum wage increase from RM1,900 to RM2,000. Labour costs comprise about 15% of VSI’s cost of goods sold, and given weak demand among brand owners, the company may have limited ability to pass on higher wage expenses, potentially weighing on profit margins even if sales improve.

In light of these factors, HLIB raised its earnings forecasts for FY27 and FY28 by 85% and 70%, respectively, reflecting the expected stronger sales from the Philippines and improved margins as the unit ceases being a drag on earnings. The research house upgraded its recommendation on VSI shares to “hold,” increasing its target price to 23 sen from 12 sen, based on a price-to-earnings multiple of 10 times forecasted FY27 earnings per share. However, the analyst maintained a cautious stance on the broader consumer electronics manufacturing services sector, citing weakening consumer sentiment as a key risk.

Separately, CIMB Research also raised its earnings expectations for FY27 and FY28 by 23% and 14%, respectively, citing improved order visibility following recent tariff harmonization measures between the United States and China. CIMB noted that persistent inflation and geopolitical tensions, particularly the ongoing US-Iran conflict, may continue to exert upward pressure on commodity prices, potentially limiting further earnings upside. The research firm expects the Philippines division to reach breakeven in FY27, helped by newly acquired moulds for household product assembly and the expansion of the third product line. CIMB reaffirmed its “hold” rating on VSI shares, raising its target price to 26 sen from 21 sen, based on an unchanged 2027 price-to-earnings multiple of 11 times.

Overall, while VSI’s near-term outlook appears more positive with signs of operational recovery and improved sales, both research houses emphasize that uncertainty around demand beyond seasonal peaks and rising labour costs present challenges that could constrain more significant earnings growth or re-rating for the stock.