This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

Having booked record-high profits for three years straight, it is little wonder that the share price of VSTECS Bhd has more than tripled in the past 3½ years. What started out as a humble information, communications and technology (ICT) peripherals distributor nearly four decades ago in 1985 is today a Main Market-listed company that describes itself as a leading ICT distributor in Asia-Pacific, with a network of more than 4,600 resellers and system integrators supporting the push towards digitalisation.

When it first floated on Bursa Malaysia in April 2010 as ECS ICT Bhd, its market capitalisation was only RM170.4 million. At its recent high of RM1.40 on June 13, VSTECS’s market capitalisation was RM499.18 million, according to Bloomberg data.

An indirect 44.2%-owned associate of Hong Kong-listed VSTECS Holdings Ltd through the latter’s wholly-owned VSTECS Holdings (Singapore) Ltd, VSTECS booked a net profit of RM59.7 million in the financial year ended Dec 31, 2022 (FY2022). This marked its fourth straight year of earnings growth, having increased from RM55 million in FY2021, RM36.8 million in FY2020, RM29.6 million in FY2019 and RM24.6 million in FY2018.

According to The Edge Malaysia Centurion Club Corporate Awards 2023 methodology, the earnings gains between FY2019 and FY2022 translate into an adjusted three-year compound annual growth rate (CAGR) of 29.85% — the highest among Centurion member companies in the technology sector. This is the second consecutive year in which VSTECS has won the Centurion Club Corporate Award for highest growth in profit after tax over three years.

But that is not all. During the evaluation period of March 31, 2020, to March 31, 2023, for The Edge Malaysia Centurion Club Corporate Awards 2023, VSTECS’ share price rose from 47 sen (adjusted from 94 sen from a one-for-one bonus issue that went ex in August 2021) to RM1.37, translating into a total return of 191.5%, Bloomberg data shows.

That gives it a three-year adjusted total return of 29.85%, according to the awards methodology — the highest among peers in the technology sector, bagging VSTECS the Highest Returns to Shareholders Over Three Years award.

“The record financial performance in FY2022 [was] driven by the hard work and dedication of our employees and the continued support of our principals and channel partners,” Lee Marn Fong @ Wu Marn Fong, VSTECS’s non-executive chairman and wife of the company’s late co-founder Foo Sen Chin, told shareholders in the group’s 2022 annual report.

“As we move into 2023, we will expand our range of product offerings to include new areas such as power solutions for data centres and other critical infrastructure sectors. We will further explore products to support the renewable energy industry, such as EV [electric vehicle] power accessories and energy storage to meet the evolving needs of the market.”

It remains to be seen whether VSTECS can continue to grow earnings to record levels for the fifth straight year.

In notes appended in its unaudited earnings release for the six months ended June 30, 2023 (1HFY2023), VSTECS told shareholders it “remains cautious on prospects for the third quarter and the balance of the year” as it observed that “demand for consumer ICT products continues to drop and this worldwide trend is expected to continue into 2024”. It also said “commercial and enterprise projects are keeping their pace but there is a dearth of large public sector projects”.

In the first half of 2023, VSTECS’s sales dipped 5.8% year on year to RM1.27 billion, from RM1.35 billion, owing mainly to “a slowdown in the consumer market, but were mitigated by higher sales from the enterprise systems and ICT services segments”.

Nonetheless, helped by a higher foreign exchange gain of RM5.2 million, its net profit came in at RM30.5 million, up 22.5% from the RM24.89 million booked in 1HFY2022, and reaching 51.1% of the RM59.68 million full-year earnings last year.

“On a positive note, we are capitalising on many data centre opportunities in Malaysia and are well positioned to supply them with a complete solution comprising ICT products like servers, storage systems, network devices and enterprise software as well as the digital power of UPS (uninterrupted power supply), racking and cooling solutions,” the notes read.

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