VSTECS (VSTECS | 5162)

Last Price: RM3.41 | Technical Call: BUY

Company Background. VSTECS is a leading distributor of Information and Communication Technology (ICT) products in Malaysia, serving both consumers and enterprises. It operates through 3 main business segments: (i) ICT distribution, (ii) enterprise systems, and (iii) ICT services. It offers a wide range of ICT products, including notebooks, smartphones, software, network infrastructure, servers, and enterprise software, from over 40 top brands. As an associate of VSTECS Holdings (Singapore), one of the Asia Pacific's top ICT distributors, VSTECS connects with over 25,000 channel partners across China, Thailand, Malaysia, and Singapore.

Prospects. (i) Expanding product offerings to enhance the portfolio and meet growing demands in artificial intelligence (AI), cybersecurity, and process automation, (ii) Leveraging data center opportunities, the growing investment in these facilities is expected to boost overall sales and increase inquiries for AI-capable infrastructure equipment, (iii) The ICT services segment is expected to grow due to strong demand for cloud services, with the upcoming launch of hyper-scalers' data centers accelerating cloud adoption in Malaysia, and (iv) VSTECS has strategically expanded its presence on local e-commerce platforms. As of 31 Dec 2023, the group manages 16 official online brand stores across 2 major marketplaces and 2 online stores directly with its brand principals.

Financial Performance. In 2QFY24, VSTECS posted higher revenue of RM624.4mil (+1.3% QoQ) with a PAT of RM15.2mil (+6.5% QoQ). This was mainly due to higher sales from both ICT distribution and enterprise system segments, lower operating costs & expenses, a better product mix and lower impairment of financial instruments.

Valuation. VSTECS is currently trading at a FY25F P/E of 14x, which is lower than the Bursa Technology Index's 5-year forward average of 24.8x. In comparison, SNS Network Technology, which provides ICT solutions to customers - including ICT products, ICT services & solutions, repairs & upgrades, and broadband services - trades at a higher FY25F P/E of 16.4x.

Technical Analysis. VSTECS broke out from its 2-month rectangle pattern with a long positive candle 2 sessions ago, implying that a bullish reversal sign may have occurred. As its 20-day and 50-day EMAs are converging now and likely to turn up in the near term, additional upside strength may be present in the near term. A bullish bias may emerge above the RM3.30 level with stop-loss set at RM2.88, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM4.00, followed by RM4.50.

Entry: RM3.30-3.41

Target: RM4.00, RM4.50

Exit: RM2.88

Source: AmInvest Research - 25 Oct 2024