VSTECS (5162)
Crazed glove & technology traders/investors were notably chasing
the flying stars in the sector after testing several highs in the recent
month, thanks to thirdwave of Covid-19 in Malaysia and strong
performance in US technology index;NASDAQ.
Coming across the overhyped Technology sector valued at not less than
P/E 30, VSTECS has given noteworthy performance during the Covid-19
outbreak and undervalued counter with P/E less than 12.
Lets break it down:
1. Strong Cash Position:-
As of Q2 results, the company is seen on nett cash position at RM150.6mil
with no borrowings at all. This greatly increase the capability of the
company to withstand future uncertainties especially the much concerned
Covid-19 outbreak. Given the Reserves at 225mil and consistent profit
making will enable the company to commit the dividend payment to
shareholders at an average 35% payout ratio.
2. Hidden Beneficiary of Covid-19 and Capitalising the "New Normal"
With the new implemented policy on to tackle the outbreak of Covid-19
from Government of Malaysia, private and public corporates are urged to
adopt the Work From Home (WFH) & Split Operations (Split Ops) policy
idea to prevent frequent close contact among employees. To adopt such
policy, corporates are required to make extensive spending on purchasing
new ICT and upgrading IT infrastructure to enable operations to run
smoothly in the long run. In this case, VSTECS is main beneficiary as
industry leader with their involvement in distributing ICT products such
as Notebooks, Computers, Laptop, Smartphone, Tablets, Printer, Network & Communication devices and etc.
3. Strong Branding:-
As one of the largest ICT products distributor in Malaysia, VSTECS is
carrying strong brands in ICT products ranging from affordable to lavish
price brands namely, Apple, ASUS, Dell, Intel, Lenovo, Samsung, Oppo,
HuaWei, MSI, HP and etc. This ensures the company is able to target
various demographic consumers to improve sale volumes.
4. Forecast Growth/Earnings:-
Based on current market outlook with the effect Covid-19 impact, VSTECS
recorded RM821.5mil revenue (+3% YoY) in 1HFY20 pursuant to higher
sales of notebooks, printer and monitor which happened during
second-wave of Covid19 MCO periods have provide us the insight of
demands in ICT products from private/public corporates in 2HFY20 to
tackle the third-wave of Covid-19 obstacles. Expecting VSTECS to record
RM1.12bil (+11% YoY) for 2HFY20 ramping up total revenue RM1.942bil (+8%
YoY) resulting net profit FY2020 at RM30.8mil at 1.60% profit margin.
Valuation:
Expecting a fair value of RM2.58 for VSTECS. The valuation is based on P/E of 15x at FY20 EPS of 17.16sen. VSTECS is valued at conservative Forward P/E of 15x for VSTECS which is relatively low as compared to its sector average rate P/E of >30x and FBMKLCI P/E of 23x.Disclaimer: The content above is provided for education purposes and does not constitute a buy or sell recommendation. Each investment decision you make should be based on your own personal analysis or seek for professional licensed investment adviser. Therefore, we will not be liable for any losses or damages arising whether directly or indirectly of you acting based on this information.
https://klse.i3investor.com/blogs/KrakenViews/2020-10-18-story-h1534706079-Sleeping_Kraken_VSTECS.jsp
