Company Coverage
VSTECS (VST MK): AI Infrastructure Demand Broadens; Momentum Building Into 2H26
BUY (Maintained)
Current price:
Target price:
Upside:
RM1.63
RM2.26
+38.7%
Analyst
Analyst
Highlights
- We expect the growth momentum to extend into 2H26, underpinned by resilient demand in the ICT distribution segment alongside continued public sector spending despite longer project delivery timelines.
- We are positive about the ISATEC disposal which allows VSTECS to redeploy the proceeds into higher-growth AI, data centre and digitalisation opportunities.
- Maintain BUY with an unchanged target price of RM2.26, pegged to 20x 2027F PE.
Analysis
- Expect a stronger 2H26. To recap, VSTECS reported a 1H26 core net profit of RM46.3m (+22% yoy), supported by the strong enterprise system segment (+59% yoy), which was mainly driven by higher public sector project deliveries. We expect earnings momentum to strengthen further in 2H26, supported by: a) continued momentum in ICT distribution mainly buoyed by new smartphone launches, including iPhone 18, Pixel smartphones and growing adoption of AI PC; b) increasing cloud adoption and recurring ICT services revenue; and c) further acceleration of public sector projects. While we expect sequential improvement in 3Q26, we anticipate a stronger 4Q26, in line with its seasonal peak in consumer and enterprise spending.
- ISATEC disposal supports capital recycling. Recall that VSTECS is monetising its 40% stake in ISATEC for RM48.8m cash, representing a 159% premium to its original RM18.8m investment cost and generating a RM22.0m one-off gain upon completion in 1Q27. While ISATEC expects to contribute about 5% of 2026 PAT, around 94% (RM45.9m) of the proceeds will be redeployed into working capital to support larger AI, DC, cloud and digitalisation projects. Beyond supporting organic growth, the stronger balance sheet provides VSTECS with greater flexibility to pursue strategic opportunities that could complement its existing capabilities and deepen its participation in the broader AI ecosystem. This could broaden VSTECS’ capabilities beyond hardware into AI platforms, services and applications.
Highlights
- We expect the growth momentum to extend into 2H26, underpinned by resilient demand in the ICT distribution segment alongside continued public sector spending despite longer project delivery timelines.
- We are positive about the ISATEC disposal which allows VSTECS to redeploy the proceeds into higher-growth AI, data centre and digitalisation opportunities.
- Maintain BUY with an unchanged target price of RM2.26, pegged to 20x 2027F PE.
Analysis
- Expect a stronger 2H26. To recap, VSTECS reported a 1H26 core net profit of RM46.3m (+22% yoy), supported by the strong enterprise system segment (+59% yoy), which was mainly driven by higher public sector project deliveries. We expect earnings momentum to strengthen further in 2H26, supported by: a) continued momentum in ICT distribution mainly buoyed by new smartphone launches, including iPhone 18, Pixel smartphones and growing adoption of AI PC; b) increasing cloud adoption and recurring ICT services revenue; and c) further acceleration of public sector projects. While we expect sequential improvement in 3Q26, we anticipate a stronger 4Q26, in line with its seasonal peak in consumer and enterprise spending.
- ISATEC disposal supports capital recycling. Recall that VSTECS is monetising its 40% stake in ISATEC for RM48.8m cash, representing a 159% premium to its original RM18.8m investment cost and generating a RM22.0m one-off gain upon completion in 1Q27. While ISATEC expects to contribute about 5% of 2026 PAT, around 94% (RM45.9m) of the proceeds will be redeployed into working capital to support larger AI, DC, cloud and digitalisation projects. Beyond supporting organic growth, the stronger balance sheet provides VSTECS with greater flexibility to pursue strategic opportunities that could complement its existing capabilities and deepen its participation in the broader AI ecosystem. This could broaden VSTECS’ capabilities beyond hardware into AI platforms, services and applications.
BUY (Maintained)
Current price:
Target price:
Upside:
RM1.63
RM2.26
+38.7%
Analyst
Analyst
IMPORTANT NOTICE - DISCLOSURES AND DISCLAIMERS
This report is provided subject to, and must be read together with, the full Disclosures / Disclaimers available at this link, which are incorporated by reference into this report. In particular, this report is intended for general circulation and informational purposes only and does not constitute personal investment advice or a recommendation to buy or sell any investment product or security. You should independently evaluate the information and, where necessary, seek advice from a qualified financial adviser regarding the suitability of any investment. Analyst certifications required under applicable regulations, including SEC Regulation AC (where relevant), are included in this report. By accessing, receiving or using this report, you acknowledge that you have read, understood and agreed to be bound by the Disclosures / Disclaimers, as may be amended, supplemented or updated from time to time.
