• MYR0.49 FV based on 21x FY25F P/E. VETECE plans to raise MYR24.5m from its IPO to expand its product offerings and fund working capital. The group is poised to benefit from the rise in digital transformation, cloud adoption, and increasing IT ecosystem complexity in domestic industries. Higher revenue from artificial intelligence (AI)-driven solutions and human capital expansion is expected to drive a 16.9% earnings CAGR (2023-2026). With a strong 28% net margin and healthy balance sheet, its FY25F 10.7x P/E presents a compelling investment opportunity.

• 21 years in enterprise IT services. VETECE’s track record in the industry is underpinned by its ISO 9001:2015 certification in software design and installation, awarded by KVQA Assessment. It also holds the prestigious TMMi Maturity Level 5 certification from the Malaysian Software Testing Board, reflecting its commitment to top-tier software testing and quality assurance practices. Leveraging strong collaborations with technology partners and vendors, VETECE has developed robust, reusable software tools tailored to meet the unique demands of the telecommunications and financial services sectors.

• Expanding its portfolio with AI-driven solutions. Moving forward, VETECE is broadening its solution portfolio to incorporate AI-driven data handling and analytics, complementing its existing enterprise application integration and data engineering offerings. The group will also actively promote new features and enhancements in its technology partners' software solutions. The introduction of advanced technologies is anticipated to incur higher sales per IT engineer and enhance overall group margins.

• Tapping into Singapore’s booming IT services market. VETECE is expanding its Singapore operations, anticipating higher growth and a larger market. Singapore's IT services industry is projected to grow at an 11.4% CAGR to SGD89.4bn by 2028, driven by its role as the Asia Pacific gateway. With a 30% increase in solution architect headcount and a new Centre of Excellence (COE), VETECE is well-positioned to meet rising digital transformation demand in both Singapore and Malaysia.

• Forecasts and valuation. We project a 3-year earnings CAGR of 16.9%, and ascribe a 21x P/E to its FY25F earnings to derive our MYR0.49 FV. The valuation is in line with the 21x P/E we ascribed to Ramssol Group, which is its closest local peer.

• Key risks: Dependent on skilled IT employees, customer concentration risks, unexpected delays in projects, and discontinuation/termination of partnerships with its technology partners.

Source: RHB Securities Research - 14 Aug 2024