KUALA LUMPUR: V.S. Industry Bhd's (VSI) labour shortage situation is expected to persist for the remainder of the financial year 2022 (FY22), said Hong Leong Investment Bank (HLIB) Research.

The bank-backed research house said that despite efforts in ramping up hiring local workers to tackle the labour shortage, the situation is expected to persist for the remainder of the financial year.

The firm understands that if the recruitment process goes as planned with the 3,700 foreign labour quota allocated, VSI would be able to ramp up its operations by 40 per cent.

"We gather that the recruitment expenses could sum up to circa RM30 million, which is expected to be fully incurred in FY22 and subsequently claimed from customers," HLIB Research said in a note today.

The research firm said VSI's prospects remain intact, with several ongoing discussions with new customers to contribute positively to future earnings.

Note that its i-Park Senai Airport City facility started production in August 2021.

Currently running at a sub-optimal capacity of 20 per cent, the firm said the utilisation is only expected to ramp up once the required labour comes in.

"The revenue guidance looks healthy at RM300 million for FY22 and RM800 million for FY23.

"We reckon that this could be one of the biggest revenue contributors once the production ramp-up fully," it said.

HLIB Research opines that once the international borders reopen, the discussions will be more productive, with several potential clients already conveying interest to visit the VSI's factories.

"We trim FY22/23 earning per share (EPS) forecasts by 21 per cent/13 per cent respectively.

"We maintain a Buy with a lower target price of RM1.21 (from RM1.45) pegged to 18 times of 2022 EPS," it added.