KUALA LUMPUR: VS Industry Bhd may face more near-term pressures on further order cuts due to weaker global customer demand, said Affin Hwang Capital.

The research house said environmental, social and governance (ESG)-related matters, the inability to pass on costs, component shortages and foreign labour constraints were among the problems faced by VS Industry over the past two years. 

With some of these issues still lingering, the firm said VS Industry had to tackle the problem of customer orders slowing down as a result of weaker global demand growth. 

"Most of its existing customers have cut back on their volume guidance in recent months following the softer market conditions, with the exception of customer X (about 45 per cent of the financial year 2023 revenue). 

"However, this is only due to low inventories after the recent termination of a Malaysian contract manufacturer," it said. 

Affin Hwang maintained its contrarian "Underweight" rating on the sector and "Sell" rating on VS Industry with an unchanged 70 sen target price.

The firm said further earnings weakness arising from the volume slowdown and margin compression in the coming quarters could see more cuts in consensus earnings. 

"We expect the electronic manufacturing services sector to face more near-term pressures on further order cuts affected by weaker global customer demand. 

"Near-term revenue growth prospects have turned grim despite the re-routing of supply chains from ongoing trade diversions," it added.