UOB Kay Hian
Date of Report: Friday, 22 August 2025
VSTECS Holdings (856 HK): Riding the Wave of Cloud and AI Growth, Eyes on Southeast Asia Expansion

Executive Summary: Rapid Expansion and Strong Performance in Cloud and AI

VSTECS Holdings, a leading provider of cloud services, enterprise systems, and IT solutions in the Asia Pacific, posted robust results for 1H25, marked by double-digit growth in both top and bottom lines. The company continues to benefit from surging demand in cloud computing, impressive expansion in Southeast Asia (SEA), and the emergence of artificial intelligence (AI) as a new revenue driver. Despite a strong rally in its share price and a positive outlook, the rating has been downgraded to HOLD following a significant run-up, with a revised target price set at HK\$11.05.

Company Overview

• Ticker: 856 HK
• GICS Sector: Information Technology
• Market Cap: HK\$16.4 billion (approx. US\$2.1 billion)
• Shares Outstanding: 1,431 million
• Major Shareholders: Li Jialin & family (41.83%)
• Products & Services: Cloud services, enterprise systems, IT infrastructure, software, data storage, computer components, IoT, gaming, drones, and VR products

Key Highlights and Financial Performance

• 1H25 Revenue: HK\$45,515 million, up 13.6% year-on-year
• 1H25 Net Profit: HK\$610 million, up 34.7% year-on-year
• Strong Cloud and SEA Segments: Cloud computing revenue surged 67.9% YoY; SEA revenue rose 22.5% YoY
• Gross Margin: 4.8% (up 0.4ppt YoY), helped by higher-margin business mix
• Net Margin: 1.3% (up 0.2ppt YoY)
• Dividend Policy: 35% payout ratio maintained
• Target Earnings CAGR (2025-27): 20%
• Valuation: 12.0x 2025F PE; target price HK\$11.05

Segment Performance Analysis

Cloud Computing: The Standout Performer

• Cloud computing revenue soared 67.9% to HK\$2,620 million, now making up 6% of total revenue.
• Strong demand for AI computing in Southeast Asia fueled this surge.
• Key partnerships with Alibaba Cloud, Amazon Web Services, and VMware saw exceptional growth of 156%, 293%, and 295% respectively.
• Cloud Star, VSTECS’s multi-cloud management platform, now serves 7 out of 9 national intelligent computing centers and grew business by 63% in 1H25.
• Launch of a community version of its multi-cloud platform is planned, further expanding its SaaS portfolio, with rollout scheduled at Huawei’s 828 B2B Enterprise Festival.

Enterprise Systems and Consumer Electronics

• Enterprise systems revenue rose 14.1% YoY to HK\$25,704 million, supported by robust regional demand and higher margin contribution.
• Consumer electronics grew 7.5% YoY to HK\$17,191 million, showing stability and sustained demand in the segment.

Southeast Asia: A Hotbed for Growth

• SEA revenue reached HK\$16,735 million, +22.5% YoY, now accounting for 37% of total sales (up from 34% in 1H24).
• Country highlights:
  • Thailand: +50% YoY
  • Philippines: +45% YoY
  • Malaysia: +31% YoY
  • Indonesia: +30% YoY
  • Singapore: -19% YoY (due to high base in 1H24 from AI center setups)
• Management targets 30% revenue growth in SEA for 2025, driven by strength across multiple markets.

Artificial Intelligence: The Next Growth Engine

• AI business delivered HK\$3.8 billion in revenue for 2024, up 42% YoY.
• Launched token-based AI large language model service platforms operational in Dongguan and Guangzhou.
• Developing industry-specific AI solutions for healthcare and education, with a new community version of its AI computing power scheduling platform on the horizon.
• Management expects the AI segment to become a major growth engine moving forward.

Financial Summary and Key Metrics

• Net cash inflow expected to remain positive, with ending cash and cash equivalents projected at HK\$5.1 billion by 2027.
• Debt to equity is forecast to decrease from 104.2% in 2024 to 87.8% by 2027, reflecting improving leverage.
• Dividend payments are forecast to rise in line with earnings, underpinned by a 35% payout policy.

Strategic Initiatives and Outlook

• Ongoing overseas expansion with a focus on SEA, with management also eyeing opportunities in Korea, Japan, Taiwan, and Australia.
• Share buybacks: 1.1 million shares repurchased in 1H25 (0.1% of issued shares).
• Active pursuit of M&A opportunities to support growth and regional diversification.
• Management reiterates a 20% earnings CAGR target for 2025-27, underpinned by cloud and AI momentum.

Valuation and Recommendation

• Downgraded to HOLD after a substantial rally, but target price lifted to HK\$11.05, based on 12.0x 2025F PE—broadly in line with US peer valuations.
• Current price implies a forward PE of 11.3x, with dividend yields of 2.8% (2025), 3.3% (2026), and 3.7% (2027).
• Forecasts for revenue and net profit for 2025-27 have been raised by 1-3% and 8-12% respectively, reflecting confidence in business outlook.

Key Takeaways for Investors

• VSTECS is well-positioned to benefit from structural growth in cloud and AI, especially in high-growth SEA markets.
• Management’s focus on innovation, regional expansion, and disciplined capital allocation underpins the company’s long-term growth trajectory.
• The stock’s strong run and current valuation warrant a neutral stance, but VSTECS remains a top regional player to watch for future upside, particularly if execution on AI and expansion continues apace.

Report prepared by UOB Kay Hian analysts Kate Luang and Gigi Cheuk.