Vstecs Bhd.MYX: VSTECS

VSTECS - 4Q24: Within Expectations; Anticipating Growth To Resume in 2025

Feb 27, 2025 at 1:37 PM UTC · Issued by Vstecs Bhd.

M a l a y s i a D a i l y

COMPANY RESULTS

VSTECS (VST MK)

4Q24: Within Expectations; Anticipating Growth To Resume In 2025

VSTECS' 4Q24 earnings came in strong at RM21.4m (+13% yoy, +10% qoq), driven by a recovery in consumer spending. Thus, 2024 core net profit accounted for 96% of our full-year estimate. We believe the new AI diffusion framework will not impact VSTECS' earnings meaningfully, given its current limited exposure to GPU servers. A key inflection point may come as the government rolls out new DC incentives, helping VSTECS unlock its TAM. Maintain BUY. Target price: RM5.02.

4Q24 RESULTS

Year to 31 Dec (RMm)	4Q24	qoq% chg	yoy % chg	2024	yoy % chg
Revenue	819.2	(2.7)	1.5	2,901.7	6.4
Gross Profit	47.9	(2.1)	13.5	172.3	12.0
EBITDA	25.7	6.4	9.9	86.5	9.1
EBIT	25.7	10.3	13.8	84.0	10.3
PBT	27.6	4.3	10.8	93.1	12.5
Tax expense	(6.2)	(10.6)	762.1	(22.6)	46.9
PATAMI	21.4	9.5	(11.4)	70.6	4.7
Core PATAMI	21.4	9.6	13.0	70.3	13.3
Margins (%)		qoq ppt chg	yoy ppt chg		yoy ppt chg
Gross Profit	5.84	0.03	(0.02)	5.9	0.3
EBITDA	3.14	0.27	(0.15)	3.0	0.1
PBT	3.37	0.22	(0.03)	3.2	0.2
Core Net Profit	2.61	0.29	0.04	2.4	0.1

Source: VSTECS, UOB Kay Hian

RESULTS

Within expectations. VSTECS' 4Q24 core net profit came in at RM21.4m (+13% yoy, +10% qoq) on revenue of RM841.8m (+2% yoy; -3% qoq). The yoy and qoq growth in earnings was driven by robust performance in ICT distribution (+9% yoy, +10% qoq) alongside higher forex and forward contract gains of RM5.5m. The growth in ICT distribution was fuelled by the recovery in consumer spending (buoyed by Google Pixel and iPhone16). This resulted in 2024 core net profit accounting for 96% of our full-year estimate, and we deem the results within expectations.
VSTECS declared an interim dividend of 4.1 sen and a special dividend of 0.8sen, bringing total 2024 DPS to 7.7sen, translating to a net dividend yield of 2.2%. This represents a payout ratio of 39%.

KEY FINANCIALS

Year to 31 Dec (RMm)	2023	2024	2025F	2026F	2027F
Net turnover	2,727.2	2,901.7	3,413.8	3,868.3	4,339.7
EBITDA	82.7	84.2	104.9	127.2	140.4
Operating profit	79.6	87.6	107.2	129.8	141.7
Net profit (rep./act.)	67.4	70.6	86.2	104.0	113.7
Net profit (adj.)	62.0	70.3	86.2	104.0	113.7
EPS (sen)	17.4	19.7	24.2	29.2	31.9
PE (x)	19.7	17.4	14.2	11.8	10.8
P/B (x)	2.7	2.4	2.2	2.0	1.8
EV/EBITDA (x)	13.4	13.3	10.4	8.4	7.4
Dividend yield (%)	1.9	1.9	3.5	3.0	3.3
Net margin (%)	2.3	2.4	2.5	2.7	2.6
Net debt/(cash) to equity (%)	(25.7)	(21.1)	(24.8)	(25.4)	(28.1)
Interest cover (x)	62.7	226.4	277.0	335.4	366.1
ROE (%)	14.8	14.0	15.8	17.0	16.5

Source: VSTECS, Bloomberg, UOB Kay Hian

Refer to last page for important disclosures.

Thursd ay, 27 F ebr uary 20 25

BUY (Maintained)

Share Price	RM3.43
Target Price	RM5.02
Upside	+46.3%

COMPANY DESCRIPTION

VSTECS is the leading distributor of ICT products to consumers and enterprises in Malaysia. Founded in 1985, the Group distributes a wide range of ICT products to both consumer and enterprise and provides IT services in the form of pre-sales, integration, and post-sales in support of the brands represented.

STOCK DATA

GICS sector		ICT Distributor
Bloomberg ticker:		VSTECS MK
Shares issued (m):			356.6
Market cap (RMm):			1,223.0
Market cap (US$m):			276.2
3-mth avg daily t'over (US$m):		0.4
Price Performance (%)
52-week high/low		RM4.52/RM1.49
1mth	3mth	6mth	1yr	YTD
(1.4)	(7.3)	11.4	128.7	(15.1)
Major Shareholders			%
VSTECS Holding Ltd			45.6
Sengin Sdn Bhd			12.2
Dasar Technologies Sdn Bhd		8.6
FY24 NAV/Share (RM)			1.53
FY24 Net Cash/Share (RM)		0.38

ANALYST(S)

Ku Wei Xiang

+603 2147 1916 weixiang@uobkayhian.com

Desmond Chong +603 2147 1980 desmondchong@uobkayhian.com

M a l a y s i a D a i l y

Thursd ay, 27 F ebr uary 20 25

2024 sales rose 6% yoy, driven by a strong rebound in the consumer segment, effectively offsetting the sluggish market conditions in 1H24. Core net profit jumped 13% yoy in tandem with higher sales alongside increased net finance income and greater profit contributions from its associate, Isatec.

STOCK IMPACT

Massive selldown unwarranted due to minimal GPU server exposure. Our channel checks with management indicate that GPU deals for the group in 2024 were only in the tens of millions of ringgits, contributing less than 5% to total revenue. The majority of servers sold by VSTECS continue to be based on x86 architecture CPUs, as most of the company's clients do not require the extensive computing power needed by US hyperscalers. Even with the rise of AI technology, these enterprises primarily focus on logic-intensive tasks (CPU) and do not require the same scale of GPUs (for repetitive, compute intensive) as hyperscalers and e-commerce players. Additionally, management noted that the margins for CPU servers and GPU servers are comparable. That said, any favourable outcome from the AI diffusion would serve as an additional booster for VSTECS.
Still expect growth in 2025 even without GPU deals. The company remains confident in its growth trajectory and expects its growth momentum to continue in 2025, even without GPU deals. Key growth drivers include: a) increased deployment of AI PCs; b) steady adoption of the Google Gemini smartphone; c) back-loaded public sector orders that were absent in 2024;
1. higher demand for data centre equipment such as networking, storage, and servers; e) increased contributions from VMware (to apply on networking, storage and server) under the new agreement; and f) potential new distributorship on new cutting-edge technology.
New DC incentives: A strategic inflection point. The Malaysian government is currently restructuring its incentive packages for data centre (DC) investments to prioritise high-value activities that bring broader economic benefits. Treasury Secretary General Datuk Johan Mahmood Merican highlighted concerns that while DCs involve significant capex, they often do not create enough high-skilled jobs and can strain electricity and water resources. To address this, the government will introduce a new investment incentive framework by mid-25, using a "scorecard" approach to assess projects based on factors like job creation, local business linkages, sustainability, and alignment with strategic economic sectors. These incentives will be backed by a RM1b strategic fund designed to cultivate local talent and promote high-value activities in the electrical & electronic and AI sectors, ensuring long-term economic benefits. We believe this could be an inflection point for VSTECS, as it will further accelerate its DC equipment growth.

VALUATION/RECOMMENDATION

Maintain BUY with an unchanged target price of RM5.02, based on 20.0x 2025F PE. Given the lack of local listed peers for valuation benchmarking, we use a 1.0x PEG ratio (compared with 2.0x PEG ratio which is the average peak PEG valuation of tech names during the 2021 tech run), reflecting a three-year net profit CAGR of 20% from 2023. The booming DC industry in Malaysia, reminiscent of the tech bull cycle in 2021, supports this valuation.

ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) UPDATES  Environmental

Electricity withdrawal from main grid reduced by 20% yoy in 2023.
Solar power constituted 41% of total electricity consumed in 2023.
26% reduction in paper consumption.

 Social

Maintaining a 50% male-female composition among total employees.
The group recorded zero work fatalities over the past nine years.
100% local employees.

 Governance

Zero confirmed corruption or harassments cases reported.
Zero fines or penalties from regulatory authorities.

Refer to last page for important disclosures.

KEY PRINCIPAL RELATIONSHIPS

Source: VSTECS

INDUSTRIES SERVED AND JOB SCOPE

Source: VSTECS

DC PRODUCTS AND SOLUTIONS

Source: VSTECS

M a l a y s i a D a i l y

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PROFIT & LOSS					BALANCE SHEET
Year to 31 Dec (RMm)	2024	2025F	2026F	2027F	Year to 31 Dec (RMm)	2023	2024F	2025F	2026F
Net Turnover	2,901.7	3,413.8	3,868.3	4,339.7	Fixed Assets	4.1	2.7	1.1	0.8
EBITDA	84.2	104.9	127.2	140.4	Other LT Assets	56.5	57.0	57.0	58.0
Depreciation & Amortisation	3.4	(2.3)	(2.6)	(1.3)	Cash/ST Investment	106.4	135.6	156.3	193.4
EBIT	87.6	107.2	129.8	141.7	Other Current Assets	705.3	760.8	866.6	977.1
Associate Contributions					Total Assets	872.2	956.1	1,081.1	1,229.4
Net Interest Income/(Expense)	(0.4)	(0.4)	(0.4)	(0.4)	ST Debt	2.0	2.0	2.0	2.0
Pre-tax Profit	93.1	113.8	137.3	150.1	Other Current Liabilities	357.1	389.8	438.4	501.1
Tax	(22.6)	(27.6)	(33.3)	(36.4)	LT Debt	0.1	0.0	0.0	0.0
Minorities	0.0	0.0	0.0	0.0	Other LT Liabilities	1.9	12.5	18.8	25.9
Net Profit	70.6	86.2	104.0	113.7	Shareholders' Equity	502.4	545.5	613.1	687.0
Net Profit (Adjusted)	70.3	86.2	104.0	113.7	Minority Interest	0.0	0.0	0.0	1.0
					Total Liabilities & Equity	872.2	952.5	1,075.1	1,220.9

CASH FLOW					KEY METRICS
Year to 31 Dec (RMm)	2023	2024F	2025F	2026F	Year to 31 Dec (%)	2023	2024F	2025F	2026F
Operating	10.5	72.5	57.4	76.1	Profitability
Pre-tax Profit	93.1	113.8	137.3	150.1	EBITDA Margin	2.9	3.1	3.3	3.2
Tax	20.1	(27.6)	(33.3)	(36.4)	Pre-tax Margin	3.2	3.3	3.5	3.5
Depreciation & Amortisation	6.3	2.3	2.6	1.3	Net Margin	2.4	2.5	2.7	2.6
Working Capital Changes	(62.2)	(23.0)	(57.1)	(47.8)	ROA	8.1	9.0	9.6	9.3
Other Operating Cashflows	(0.4)	9.3	10.5	10.2	ROE	14.0	15.8	17.0	16.5
Investing	1.6	(1.0)	(1.0)	(1.0)
Capex (Growth)	1.2	(1.0)	(1.0)	(1.0)	Growth
Investments	0.0	0.0	0.0	0.0	Turnover	6.4	17.6	13.3	12.2
Proceeds from Sale of Assets	0.2	0.0	0.0	0.0	EBITDA	1.8	24.5	21.3	10.3
Others	0.2	0.0	0.0	0.0	Pre-tax Profit	12.5	22.1	20.7	9.4
Financing	(56.5)	(42.3)	(35.6)	(38.0)	Net Profit	4.7	22.1	20.7	9.4
Dividend Payments	(23.5)	(43.1)	(36.4)	(39.8)	Net Profit (Adjusted)	13.3	22.6	20.7	9.4
Issue of Shares	(1.9)	0.0	0.0	0.0	EPS	13.3	22.6	20.7	9.4
Proceeds from Borrowings	(0.4)	(0.4)	(0.4)	(0.4)
Loan Repayment	(0.2)	0.0	0.0	0.0	Leverage
Others/Interest Paid	2.2	0.8	0.8	1.8	Debt to Total Capital	0.1	0.0	0.0	0.0
Net Cash Inflow (Outflow)	(44.5)	29.2	20.8	37.1	Debt to Equity	0.1	0.1	0.1	0.1
Beginning Cash & Cash Equivalent	150.9	106.4	135.6	156.3	Net Debt/(Cash) to Equity	(21.1)	(24.8)	(25.4)	(28.1)
Changes Due to Forex Impact	0.0	0.0	0.0	0.0	Interest Cover (x)	226.4	277.0	335.4	366.1
Ending Cash & Cash Equivalent	106.4	135.6	156.3	193.4

Refer to last page for important disclosures.

M a l a y s i a D a i l y

Thursd ay, 27 F ebr uary 20 25

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