Company Background. VSTECS is a leading distributor of Information and Communication Technology (ICT) products to consumers and enterprises throughout Malaysia. It operates under 3 main business segments: (i) ICT distribution, (ii) enterprise systems, and (iii) ICT services. The group distributes a comprehensive range of ICT products, including notebooks, computers, smartphones, tablets, software, network & communication infrastructure, servers and enterprise software from more than 40 leading principals.

Prospects. (i) The replacement cycles of endpoint devices with 5G and new artificial intelligence (AI) chipset notebooks are set to commence in 2HFY24, with the aim of boosting the group's overall sales, (ii) Taking advantage of data-centre opportunities to provide comprehensive ICT products. This includes digital power solution packages such as servers, network devices, enterprise software, and uninterrupted power supply, (iii) Expect ICT services segment to expand further, driven by high demand for cloud-related services, particularly with the growing adoption of cloud computing by enterprises, and (iv) Further exploring products to support the renewable energy industry, such as EV power accessories & energy storage to meet evolving market requirements.

Financial Performance. In 4QFY23, VSTECS posted higher revenue of RM807mil (+24.9% QoQ) with a PAT of RM24mil (+90% 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 trading at an attractive FY24F P/E of 8.3x, which is lower than its 5-year forward average of 14x and Bursa Technology Index’s 25x currently. As a comparison, Mesiniaga, involved in sales & service of information technology products and related services, trades at a much higher trailing P/E of 20.6x.

Technical Analysis. VSTECS may rise higher after it formed a long white candle and left an upside gap 2 sessions ago. As the stock also surged to a new multi-year high and coupled with rising EMAs, it may see additional strength in the near term. A bullish bias may emerge above the RM1.54 level with stop-loss set at RM1.41, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM1.80, followed by RM2.00.

Source: AmInvest Research - 1 Mar 2024