20150414-中投证券_香港_-伟仕佳杰-00856.HK-亚太区领先的资讯科技产品分销企业_14页_1mb

VST Holdings Limited Summary

Core Content

VST Holdings Limited (856HK) is a leading IT product distributor in the Asia-Pacific region, primarily engaged in the distribution of IT products and the provision of enterprise systems and IT services. The company has a significant presence in 9 countries with a vast reseller network of 33,000 partners and operates as a key player in the IT distribution industry.

Main Points

1. E-commerce Growth

• VST benefits from the rise of e-commerce in China, where internet resellers such as JD.com, Yixun, Gome, Suning, and Amazon have significantly increased their turnover.
• In FY2014, VST's total turnover from internet resellers increased by 30% YoY to HK$2.6 billion.
• The contribution of internet resellers to VST's total revenue rose from 5.05% in 2013 to 6.32% in 2014.
• E-commerce is accelerating the consolidation of the IT distribution market, with larger players like VST, Digital China, and Synnex expected to gain more market share.

2. Operational Efficiency

• VST is recognized as a regional player with excellent operating efficiency, supported by its high gross profit margin (GPM) and operating profit margin (OPM) performance.
• The efficiency is attributed to:
  • A strong selection of product portfolios, including first-tier international brands.
  • Efficient corporate structure and culture.
  • Strong cost control measures.
• GPM and OPM are considered critical for long-term success in the IT distribution sector.

3. Enterprise Systems Expansion

• VST's enterprise systems segment (servers, cloud data storage, etc.) has shown a CAGR of 20% between FY2010 and FY2014.
• The company is well-positioned to benefit from the ongoing growth of cloud computing in China, which is expected to enhance both revenue and GPM.

4. Gaming Distribution

• VST has entered the gaming distribution market in China, becoming an authorized distributor for PS4 and Xbox One.
• This move is expected to improve profitability due to higher margins, strong initial sales performance, and potential for future growth with more game approvals.

5. Investment Recommendation

• A Strong Buy recommendation is issued with a target price of HK$3.87, which is 15% below the average FY15E PE of its peers (10.31x).
• VST currently trades at 7.20x FY15E PE, implying a 30.1% discount relative to peers.
• The company's growth potential in new Asian markets, gaming, and exclusive distributorships of Yota phones is expected to reduce the valuation discount.

Financial Overview

Peer Comparison

Key Risks

• PRC Economic Slowdown: May affect the growth of enterprise systems segment.
• GPM Erosion: Due to increased competition in the IT distribution market.
• Market Volatility: Potential fluctuations in the IT industry due to external factors.

Business Model

• VST acts as a wholesaler, offering value through:
  • Extensive Distribution Network: Acts as a collective buyer for IT suppliers, reducing costs and time.
  • Stock Management and Cash Conversion: Efficient management of inventory and cash flow.
  • Value-Added Services: Includes after-sales, warranty, enterprise systems, and training services.

Strategic Initiatives

• Expansion into Asian Markets: Entered many Asian countries over the past 3 years.
• Gaming Distribution: Secured distribution rights for PS4 and Xbox One in China.
• Exclusive Distributorships: Secured exclusive rights for Yota phones in certain regions.

Dividend Policy

• Management has committed to maintaining a dividend payout ratio of at least 30% for the foreseeable future, indicating a stable and predictable return for shareholders.

Valuation

• VST is currently undervalued relative to peers, with a P/E ratio of 7.20x for FY15E.
• The valuation discount is expected to narrow due to the company's growth potential and operational efficiency.
• The target price of HK$3.87 implies a 15% discount relative to peers' average P/E ratio.

Financial Forecast

• Topline Growth: Expected to grow at 5.8% in FY15E, 3.8% in FY16E, and 2.7% in FY17E.
• Net Profit Growth: Projected to increase by 7.7%, 5.7%, and 4.6% respectively.
• GPM Stability: Expected to remain stable around 3.94% to 4.00%.
• Operating Efficiency: Maintained at a high level, with OPM expected to increase slightly.

Conclusion

VST is a well-positioned player in the IT distribution market, benefiting from the growth of e-commerce and expanding into enterprise systems and gaming segments. The company's strong operational efficiency and strategic moves into new markets suggest a solid growth potential. Despite the current valuation discount, the company is recommended as a Strong Buy with a target price of HK$3.87, reflecting its long-term value and growth prospects.