VSTECS, established in 1991, is one of Asia's leading IT distributors and Cloud Computing Service providers. With the company's solid market position, global layout, and diversified IT solutions, VSTECS is expected to benefit from the rapid growth of AI computing demand, the demand for IT innovation in China, and strong growth in digitalization in Southeast Asia. VSTECS's total revenue reached 73.9 billion HKD in 2023, with enterprise systems/Consumer Electronics/Cloud Computing accounting for 55%/41%/4% of total revenue, respectively. VSTECS currently has established over 80 offices in 9 countries and has formed partnerships with more than 300 leading upstream Technology suppliers and over 50,000 downstream channel partners to provide high-quality IT solutions to end users. A target share price of HKD 7.20 is set for VSTECS, based on a 10 times 2025 P/E ratio, with an initial coverage rating of "Buy."

Seizing the digitalization demand in the Southeast Asian market: Overseas expansion has become an important growth driver for VSTECS, with revenue from the Southeast Asian market rising from 21% in 2019 to 34% in the first half of 2024. The company is the largest IT distributor in several Southeast Asian countries, including Thailand, Malaysia, the Philippines, and Indonesia. Bullish on two major growth opportunities in the Southeast Asian market: 1) As more Chinese IT companies enter the Southeast Asian market, VSTECS is expected to benefit from these companies' overseas expansion needs, becoming the main sales channel for several leading Chinese IT platforms in the Southeast Asian market; 2) Continued growth in IT demand from local enterprises and governments in Southeast Asia. With the strong local partner network and rich operational experience, VSTECS is expected to better seize the IT investment demands and opportunities in the Southeast Asian market.

Focusing on AI development and IT innovation opportunities in the Chinese market: Looking ahead to the Chinese market, it is expected that: 1) VSTECS will benefit from the trend of AI development, which is likely to drive demand for IT products such as servers, databases, and storage from enterprises. According to Gartner's forecast, China's IT spending is expected to grow by 8% year-on-year to 589 billion USD in 2024, primarily driven by strong growth in demand for AI infrastructure/products/services; 2) VSTECS will also benefit from the trend of IT innovation in China. VSTECS has established partnerships with several leading domestic IT brands that can meet the growing demand for IT innovation. At the same time, it is expected that the effects of policy support in China will begin to manifest in 2025, driving digitalization demand from local governments and enterprises.

It is expected that VSTECS's total revenue will grow at a CAGR of 10% from 2024 to 2026, reaching 98.6 billion HKD in 2026, mainly benefiting from AI and IT innovation demand, as well as strong growth in the Cloud Computing business. It is predicted that the operating margin will slightly decline year-on-year in 2024, then stabilize at 1.8% in 2025-2026, mainly due to intense competition in the Chinese enterprise IT market. VSTECS has maintained good returns for Shareholders in recent years and raised the dividend payout ratio from 30% to 40% in 2023, corresponding to approximately a 5% dividend yield.

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