Broker: UOB Kay Hian
Date of Report: Thursday, 14 August 2025

VSTECS Berhad Delivers Robust Growth in 2Q25: Strong Earnings, Healthy Pipeline and Accelerated ICT Momentum

Company Overview: Malaysia’s Leading ICT Distributor

VSTECS Berhad stands as Malaysia’s premier distributor of ICT products, serving both consumer and enterprise markets. Established in 1985, the group offers a comprehensive range of products and IT services, including pre-sales, integration, and post-sales support for its represented brands. VSTECS continues to strengthen its position in the market, backed by solid fundamentals and a forward-looking approach to digital infrastructure.

Stock Snapshot and Key Data

• Share Price: RM3.41
• Target Price: RM4.38
• Potential Upside: +28.4%
• Market Cap: RM1,215.9 million (US\$289.1 million)
• Shares Outstanding: 356.6 million
• Major Shareholders: VSTECS Holding Ltd (45.6%), Lee Marn Fong (12.4%), Sengin Sdn Bhd (12.2%)
• 52-week Range: RM4.18 – RM2.46
• FY24 NAV/Share: RM1.41
• FY24 Net Cash/Share: RM0.30

2Q25 Results: Accelerated Earnings and Revenue Growth

VSTECS delivered impressive 2Q25 earnings, posting a core net profit of RM20.2 million—a 33% year-on-year increase and a 15% sequential rise. Revenue surged to RM818.9 million, up 31% year-on-year and 18% quarter-on-quarter. For the first half of 2025, core net profit reached RM37.8 million, representing 44% of the full-year estimate and a 29% increase from the prior year. These results are considered within expectations, given the seasonally weaker first half for VSTECS, which historically accounts for 42–49% of annual earnings. The outlook for 2H25 is more robust, driven by seasonally stronger consumer and enterprise spending and the completion of several colocation data centres in Malaysia.

Key Financial Table (RM millions unless stated otherwise)

Segment Performance and Growth Drivers

• ICT Distribution: 18% yoy growth in 1H25, buoyed by demand for mid-end iPhone, Pixel smartphones, and AI PCs.
• Enterprise Systems: 22% yoy growth, supported by revived public sector projects and strong cloud service adoption.
• ICT Services: 35% yoy expansion, reflecting robust demand across consumer and enterprise markets.

The second quarter witnessed sales rising 31% yoy, with core net profit growing by 33%—a testament to the surging contributions from enterprise systems and ICT services, which offer higher margins than the ICT distribution segment.

Outlook: Accelerating Into 2025 With Blue-Ocean Opportunities

VSTECS is poised for accelerated growth in 2025, underpinned by several strategic factors:

• Wider deployment of AI PCs in the market
• Continued adoption of Google Gemini smartphones and newly launched iPhone models
• Resumption of public sector orders, which were largely missing in 2024
• Rising demand for data centre equipment—including networking, storage, and servers
• Enhanced contributions from VMware under a new agreement, especially for networking, storage, and server solutions
• Potential new distributorship for advanced technologies

A key opportunity lies in the booming market for colocation data centres. Unlike hyperscale data centres, which procure equipment directly, colocation facilities source IT equipment from distributors like VSTECS. With 200MW of colocation DCs under construction in Malaysia, and IT equipment costs estimated at RM40–50 million per MW, the total addressable market stands at around RM10 billion. VSTECS commands approximately 50% market share in Malaysia’s enterprise systems distribution, highlighting its leadership in this blue-ocean segment. The majority of colocation DCs are still in the M&E phase, where VSTECS is already supplying UPS and smart cooling systems. This phase typically takes 1–2 years before installation of IT equipment commences.

Valuation and Recommendation

• Rating: BUY (Maintained)
• Target Price: RM4.38
• Basis: 15.0x 2026F PE, utilizing a 0.85x PEG ratio for a three-year net profit CAGR of 17% from 2024

With no listed local peers for direct comparison, VSTECS’s valuation reflects its solid growth prospects and unique market positioning.

Environmental, Social, and Governance (ESG) Updates

• Environmental: Reduced electricity withdrawal from grid by 20% in 2023; solar power accounted for 41% of total electricity consumed; paper consumption down 26%.
• Social: Maintained a 50% male-female workforce balance; zero work fatalities in nine years; 100% of employees are local.
• Governance: Zero confirmed cases of corruption or harassment; no fines or penalties from regulators.

Revenue Breakdown for 2Q25

• ICT Distribution: 43%
• Enterprise System: 47%
• ICT Services: 10%

Profit & Loss, Balance Sheet, and Cash Flow Highlights

Conclusion: VSTECS Positioned for Sustained Upside

VSTECS Berhad’s stellar performance in 2Q25, supported by strong financials, strategic growth drivers, and a healthy pipeline of ICT and enterprise system projects, makes it a compelling buy for investors seeking exposure to Malaysia’s rapidly evolving tech landscape. With robust demand across all segments, ESG leadership, and unique market opportunities in the data centre space, VSTECS is well-placed for sustained upside in the years ahead.