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Trading Buy with FV of RM3.60 (27% upside). Enterprise segment (2x higher GPM than ICT distr.) will be a key earnings driver as corporations scramble to upgrade critical back-end infra to (i) tighten network security, (ii) support workforce mobility and (iii) quicken data processing speed. This leads to massive increase in web traffic and a surge in demand for cloud/data center software and hardware. As such, VSTECS even expanded its portfolio offering with ~5 new enterprise brands in 2020 and is in talks to bring in Alibaba Cloud which could serve as another share price catalyst.
Lead time for laptop/tablet doubled due to immense demand from the WFH trend and is expected to remain elevated following the PERMAI (tax relief on laptop purchase) and CERDIK (free laptop for 150k students) initiatives.
As a potential beneficiary of the RM1.16b NIIS project by IRIS (customer), VSTECS’s current fwd PE of 12.5x serves as a laggard play to the tech sector’s monster rally. Our Trading Buy with FV of RM3.60 is based on FY21E PER of 16x.
