20180829-中国银河国际证券-伟仕佳杰-00856.HK-Stong_1H_2018_results.Maintain_BUY_with_a_higher_target_price_4页_1mb

VSTECS Holdings Limited (0856.HK) Summary

Core Content

VSTECS Holdings Limited reported strong financial results for the first half of 2018, with a 36% year-over-year (YoY) increase in net profit to HK$362.0m, up from HK$265.5m in 1H 2017. The company's revenue rose by 16% YoY to HK$27,942.6m, demonstrating robust performance in the IT distribution sector. The report maintains a BUY rating with a new target price of HK$5.35, which is 45.4% higher than the closing price of HK$3.68 on August 28, 2018.

Main Points

• Strong 1H 2018 Performance: VSTECS achieved better-than-expected top- and bottom-line growth, with net profit and revenue both showing significant YoY increases.
• Growth Drivers: The company is benefiting from the increased adoption of cloud services and Big Data, which is driving demand for networking products and servers.
• Product Expansion: In 1H 2017, VSTECS signed deals on 35 new product lines, contributing to its growth in 2H 2017 and 1H 2018. The company continues to expand its product range and business with leading players such as Huawei, HP, and Dell.
• Market Position: VSTECS maintains a leading position in the Southeast Asia and China IT markets, supported by its expansion of both upstream and downstream partners.
• Valuation: Despite the share price correction since mid-June, the company's valuation of 6.2x 2018E PER and prospective yield of 5.3% are considered unjustified, suggesting upside potential for the stock.

Key Financials (in HKDm)

Revenue Segments

• Mobility Digital Devices: Increased by 31% YoY to HK$12,628.8m, contributing 45.2% of total revenue.
• Component Segment: Decreased by 14% YoY to HK$5,156.5m, contributing 18.3% of total turnover. Management expects a gradual decline in this segment.
• Cloud and Big Data Analytics: Increased by 17% YoY to HK$6,622.0m, contributing 23.7% of total revenue.
• Network and Data Security: Increased by 32% YoY to HK$3,535.2m, contributing 12.7% of total revenue.

Geographic Performance

• North Asia: Showed 12% YoY growth.
• Southeast Asia: Demonstrated 34% YoY growth.

Strategic Initiatives

• VSTECS is expanding its toB business and diversifying its product range.
• The company is authorized to sell Huawei products in China and some overseas markets.
• It is venturing into new businesses such as supply chain, IT services, and online finance.

Investment Highlights

• Solid Growth: Expected to maintain solid growth in 2018 and 2019.
• Valuation: The current valuation is considered undervalued compared to its peers.
• Target Price: Based on a 9x 2018E PER, which is higher than its historical average of 6x.
• Outlook: The report believes there is upside potential for the stock despite market volatility.

Analyst Information

• Analyst: Mark Po, CFA (Senior Analyst) and Wong Chi Man, CFA (Head of Research)
• Contact: Mark Po at (852) 3698-6318, markpo@chinastock.com.hk; Wong Chi Man at (852) 3698-6317, cmwong@chinastock.com.hk

Disclaimer and Disclosure

• The report is not directed at individuals or entities in jurisdictions where distribution would be unlawful.
• The information is believed to be reliable but no warranty is made regarding its accuracy.
• Disclosure of Interests: China Galaxy International may have financial interests in the subject company, potentially equal to or more than 1% of its market cap.
• Analyst Certification: The analyst certifies that all views accurately reflect personal opinions and no compensation is tied to the report's content.

Conclusion

VSTECS Holdings Limited is positioned for continued growth in the IT distribution sector, supported by strong regional demand and strategic expansion. The report recommends a BUY rating with a target price of HK$5.35, based on the company's strong fundamentals, diversified revenue streams, and strategic initiatives. Despite market volatility, the company's valuation and performance metrics suggest potential for appreciation.