Company Coverage
VSTECS (VST MK): 2Q26: Within Expectations; Growth Momentum To Resume In 2H26
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
RM1.75
RM2.26
29.1%
RM1.70
Analyst
Analyst
Highlights
- VSTECS’ 2Q26 earnings came in strong on robust growth across all three business segments.
- We expect the growth momentum to extend into 2H26, underpinned by resilient demand in ICT distribution segment alongside continued public sector spending despite longer large project delivery timelines.
- Maintain BUY with a revised target price of RM2.26 (previously RM1.70 exbonus),
pegged to 20x 2027F PE.
Analysis
- Within expectations. VSTECS posted 2Q26 revenue and core net profit of RM1.1b (+32% yoy, +3% qoq) and RM23.4m (+16% yoy; +2% qoq)
respectively. This brought 1H26 core net profit to RM46.3m (+22% yoy), accounting for 43% of our full-year estimate. We deem the results to be within expectations, as 1H earnings typically contribute less than 45% of full-year earnings (38-42% in 2024-25). Note that core net profit has been adjusted to exclude the RM6.9m debt recovery from Logicalis, which we deem to be nonrecurring in nature.
- In 1H26, the strong yoy growth in both revenue and earnings was mainly driven by robust performance across all three segments, including ICT
distribution (+20% yoy), enterprise systems (+46% yoy) and ICT services (+14% yoy). Growth was supported by resilient consumer electronics
demand, higher volume of public-sector project, increased shipments of AIrelated DC equipment, and continued momentum in cloud services adoption. However, 1H26 GP margin contracted 0.74ppt yoy to 5.7% mainly due to unfavourable product mix from the enterprise systems segment.
- 2Q26 revenue rose 3% qoq, supported by strong growth across all three business segments. Core net profit grew 2% yoy in tandem with higher sales, underpinned by stronger contributions from the enterprise systems (52%), which outpaced the lower margin ICT distribution segment (39%).
- Temporary blip, but structural AI demand intact. The global ICT industry continues to grapple with CPU and memory chip shortages, driving higher component costs and vendor price volatility. This has prompted a wait-andsee stance among some customers, particularly in the enterprise segment, where elevated server and storage prices have led private sector customers to defer procurement pending potential price normalisation, creating nearterm volatility in order flows and revenue recognition. Nevertheless, ICT distribution demand remains resilient, while enterprise softness should be partly cushioned by public-sector spending and project rollouts.
- More importantly, we view these headwinds as transitory rather than structural, with critical investments in digital transformation, AI,
cybersecurity and data centre infrastructure unlikely to be materially deferred. Meanwhile, the ICT Services segment provides earnings stability through recurring cloud subscription revenue and growing value-added services, further strengthening earnings quality as cloud migration and IT modernisation accelerate. Overall, the expanding AI/DC infrastructure pipeline and structural digitalisation trend should underpin a compelling medium- to long-term growth outlook.
Highlights
- VSTECS’ 2Q26 earnings came in strong on robust growth across all three business segments.
- We expect the growth momentum to extend into 2H26, underpinned by resilient demand in ICT distribution segment alongside continued public sector spending despite longer large project delivery timelines.
- Maintain BUY with a revised target price of RM2.26 (previously RM1.70 exbonus),
pegged to 20x 2027F PE.
Analysis
- Within expectations. VSTECS posted 2Q26 revenue and core net profit of RM1.1b (+32% yoy, +3% qoq) and RM23.4m (+16% yoy; +2% qoq)
respectively. This brought 1H26 core net profit to RM46.3m (+22% yoy), accounting for 43% of our full-year estimate. We deem the results to be within expectations, as 1H earnings typically contribute less than 45% of full-year earnings (38-42% in 2024-25). Note that core net profit has been adjusted to exclude the RM6.9m debt recovery from Logicalis, which we deem to be nonrecurring in nature.
- In 1H26, the strong yoy growth in both revenue and earnings was mainly driven by robust performance across all three segments, including ICT
distribution (+20% yoy), enterprise systems (+46% yoy) and ICT services (+14% yoy). Growth was supported by resilient consumer electronics
demand, higher volume of public-sector project, increased shipments of AIrelated DC equipment, and continued momentum in cloud services adoption. However, 1H26 GP margin contracted 0.74ppt yoy to 5.7% mainly due to unfavourable product mix from the enterprise systems segment.
- 2Q26 revenue rose 3% qoq, supported by strong growth across all three business segments. Core net profit grew 2% yoy in tandem with higher sales, underpinned by stronger contributions from the enterprise systems (52%), which outpaced the lower margin ICT distribution segment (39%).
- Temporary blip, but structural AI demand intact. The global ICT industry continues to grapple with CPU and memory chip shortages, driving higher component costs and vendor price volatility. This has prompted a wait-andsee stance among some customers, particularly in the enterprise segment, where elevated server and storage prices have led private sector customers to defer procurement pending potential price normalisation, creating nearterm volatility in order flows and revenue recognition. Nevertheless, ICT distribution demand remains resilient, while enterprise softness should be partly cushioned by public-sector spending and project rollouts.
- More importantly, we view these headwinds as transitory rather than structural, with critical investments in digital transformation, AI,
cybersecurity and data centre infrastructure unlikely to be materially deferred. Meanwhile, the ICT Services segment provides earnings stability through recurring cloud subscription revenue and growing value-added services, further strengthening earnings quality as cloud migration and IT modernisation accelerate. Overall, the expanding AI/DC infrastructure pipeline and structural digitalisation trend should underpin a compelling medium- to long-term growth outlook.
BUY (Maintained)
Current price:
Target price:
Upside:
Previous TP :
RM1.75
RM2.26
29.1%
RM1.70
Analyst
Analyst
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