Vstecs to see all-time-high earnings in FY2020

KUALA LUMPUR: Vstecs Bhd’s fourth quarter ended December 31, 2020 (4QFY20) is expected to be its strongest quarter due to demand surge, Kenanga Research said.

The firm also said Vstecs’ seasonal decline in the first quarter ending March 31, 2021 (1QFY21) revenue would be significantly smaller compared to last year.

“Alongside general practice for corporates to exhaust their yearly IT budget, and seasonally higher consumer spending (festive buying), we believe the group is likely to close its FY20 with earnings hitting an all-time-high,” it said.

The firm said following the Work-From-Home (WFH) trend, demand for endpoint devices had surged and lead-times for popular endpoint devices like laptops and some tablets had doubled to four to eight weeks.

Building on this demand surge, Kenanga Research said Vstecs’ ICT distribution segment also stood to gain from the Permai initiative (RM2,500 tax waiver for purchase of endpoint devices) and Tabung Cerdik announced in 2021 Budget (RM150 million to provide laptops and tablets for 150,000 students).

“Cerdik’s first tranche of devices is expected to be delivered in February, potentially adding a boost to Vstecs’ 1QFY21 topline.

“Over the next six to 12 months, laptop demand is expected to remain elevated, while the introduction of more 5G-enabled devices will be a boon for the group,” it said.

Meanwhile, Kenanga Research believes that Alibaba’s range of cloud products and solutions could soon be brought into Malaysia through Vstecs, which could serve as another share price catalyst.

According to an Alibaba Cloud survey, 66 per cent of respondents were more supportive of cloud-based IT solutions for their businesses compared to pre-pandemic and there was still opportunity for greater adoption in Malaysia (72 per cent based on survey) versus Singapore (87 per cent).

“Moreover, the RM1.16 billion immigration system contract secured by IRIS (a customer of Vstecs) could possibly benefit the group given the high amount of software and hardware required.

“In our opinion, the group’s Enterprise Systems is the segment to watch in financial year 2021 (FY21),” it said.

Kenanga Research has a trading buy on Vstecs with a fair value of RM3.60.

Source: NST