SENAI, MALAYSIA – After lockdown, VS Industry has resumed work at its China operations, for which it expects losses to be lower this financial year compared to 2019.

The group reduced losses incurred from China operations in the first half of 2020, where loss before tax stood at RM6.5 million (US$1.5 million) compared with RM24 million in the same period of 2019.

The company awaits overseas travel restrictions to be lifted to continue talks with potential customers who want to divert operations to Malaysia as a result of the US-China trade war.

VS Industry sees a bright future for electronics manufacturing services, especially with opportunities from trade diversion and as consumer spending and demand for consumer appliances pick up.

Underutilization of facilities in China continues to be a challenge, but new orders are coming in gradually, and, so far, VS Industry has not seen customers shift orders to other contract manufacturers in China.

“We will continue to enhance our operational flexibility to minimize the adverse impact on our business operations. By doing this, we hope the positive trend will continue and ultimately improve our bottom line,’’ said VS Industry managing director Datuk Gan Sem Yam.

So far, the pursuit of an asset-light model, where a business owns relatively fewer capital assets compared with the value of its operations, has been effective for its China operations. Operations in Zhuhai, China, stopped for the Chinese New Year from Jan 25 to 30 and were only allowed to resume on Feb 17 due to the virus outbreak. Following the resumption of work, the group has been clearing the backlog of orders. The group has secured a sizeable customer and a few smaller customers.

In 2019, the group’s China operations contributed RM 388.1 million, or 12%, of the group’s total revenue.

VS Industry sees a positive outlook for the EMS sector, as there are opportunities for further expansion, especially in Malaysia, which will continue to be the main revenue driver. Pandemic challenges are short-term problems, the company says.

“The outlook in the longer term remains intact and bright,’’ said Gan.

Post-lockdown, there are some encouraging signs in China, with consumer spending slowly picking up. In Malaysia, Gan sees consumer spending normalizing in 12 to 18 months.

As an export-oriented manufacturer, the group uses forward hedging contracts to hedge its foreign currency exposure and benefits from natural hedges as part of its sales and purchases denominated in US dollars. For some customers, VS Industry transacts in ringgit, while its cost is denominated in US dollars. For others, sales and cost are both in US dollars.

Given uncertainties, it is hard to predict the ringgit trend.

“We will just have to adapt and be nimble in our decision-making process, regardless of the foreign exchange rates. The pandemic has forced the group to think harder on its digitalization efforts. It is already conducting its marketing activities and organizing meetings via online conferencing tools. We are assessing the avenues where we can improve further, as well as the need to adopt changes to our business model,’’ said Gan.

The core of manufacturing still requires the physical presence of workers in assembly processes, as well as equipment and machine handling. However, the group is digitalizing activities where feasible, such as in implementing real-time production status monitoring, inventory management systems, online production reporting and production scheduling.

With the economy reopening, the group’s priority is to ramp up production, be in close communication with clients and ensure prospects remain positive.

In Malaysia, VS Industry has 7,000 staff, and groupwide about 10,000. The group is assessing the feasibility of flexible working hours and work from home.

“Investment in our employees, IT infrastructure, digitalization and automation will all carry on.’’

Ed.: RM1 = US$0.24

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