This article first appeared in The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

ARTIFICIAL intelligence (AI), the cloud and data centres are booming now but VSTECS Bhd (KL:VSTECS) has been laying the groundwork for years with its global principals — which are involved in these businesses — to bring their products and solutions to the Malaysian market.

VSTECS executive director and CEO Soong Jan Hsung says that over the past five years, the group has consistently maintained a portfolio of more than 40 principals, many of which are established brands in both the consumer and enterprise spaces (see table).

“Today, we have 55 principals in total. Our approach to new distributorships is strategic — [it is] designed to complement and enhance our existing offerings, creating a virtuous cycle of demand,” he tells The Edge in an interview.

Soong says that recently, the Main Market-listed technology firm has secured more sole distributorships, which will help it expand its market share in the areas of AI, cloud and data centres.

“You could say that we are in the right place at the right time. With our extensive portfolio of products, solutions and services, we are positioned to capitalise on these growth vectors,” says the 60-year-old industry veteran.

Soong, who was appointed director in 1997, has more than 30 years’ experience in the information and communications technology (ICT) distribution market.

In January, VSTECS announced that it had signed a distribution agreement and been named as an authorised distributor for Starlink high-speed internet in Malaysia. Starlink is engineered and operated by SpaceX, which was founded by billionaire Elon Musk.

Two months later, VSTECS announced that it would distribute Schneider Electric’s uninterruptible power supply or UPS, sold under its flagship brand APC, to provide low-carbon power solutions to data centres.

Then in May, VSTECS said it had been appointed the first Amazon Web Services distributor in Malaysia, a move that will help it expand its cloud portfolio to cover private, public and hybrid cloud needs.

A month later, the company teamed up with LGMS Bhd (KL:LGMS) to provide the LGMS StarSentry solution, which enables small and medium enterprises to boost their cybersecurity defences.

In mid-August, VSTECS was appointed the sole distributor for the Google Pixel 9 range of smartphones in Malaysia.

Soong says “there is definitely more to come” with regard to new distributorships and collaborations for VSTECS.

“We are constantly scouting [for] new opportunities and staying ahead of market trends to keep our portfolio dynamic and relevant. All three areas (AI, cloud and data centres) are incredibly exciting, and it would be impossible to single one out, as they are interdependent components of modern digital infrastructure.”

Soong explains that data centres are the foundation, the cloud business serves as a platform whereas AI is the catalyst for VSTECS’ future growth.

“Data centres are the bedrock of the digital economy, providing the infrastructure needed to store and process the massive amounts of data that fuel AI algorithms.

“Cloud computing is the engine that drives scalability and innovation. It offers the flexibility needed to train and deploy complex AI models, providing on-demand access to vast computational resources.

“AI is revolutionising how consumers and enterprises operate. We are seeing AI become integral to everything, from daily tasks to complex enterprise operations, and this trend is accelerating,” he elaborates.

VSTECS can boast of the rather impressive record of having been profitable for 38 consecutive years. Between the financial year ended Dec 31, 2019 (FY2019) and FY2023, it achieved a compound annual growth rate (CAGR) of 23%.

Over the past 17 years, the company’s annual earnings increased nearly tenfold, from RM7.1 million in FY2006 to RM67.4 million in FY2023. Its profitable streak continued in the first half ended June 30, 2024 (1HFY2024), when it reported earnings of RM29.57 million.

In its distribution business, VSTECS benefits from growing technology spending without the burden of research and development costs. This allows the group to leverage global technologies with minimal capital outlay while ensuring quick cash conversion.

“Our adaptability and responsiveness to market dynamics are key strengths that have served us well over the years,” says Soong.

While VSTECS does not provide specific forecasts, he remains optimistic about the group’s growth trajectory.

“Given our focus on high-growth areas and megatrends, we expect to continue delivering robust financial performance. We are also committed to expanding our market reach by staying ahead of technological trends.

“While the market is currently focused on AI, cloud and data centres, we are already exploring the next wave of technological advancements to bring to Malaysia. This ensures that we remain at the forefront of innovation and continue to drive sustainable growth,” he stresses.

VSTECS was co-founded by the late Foo Sen Chin and the late Datuk Dr Teo Chiang Quan in 1986, following a management buyout of VSTECS KU Sdn Bhd. Teo was better known as the chairman-cum-executive director of property developer Paramount Corp Bhd.

The company, which started as a small peripherals distributor, grew rapidly to become one of the largest ICT product distributors in the country. In 2010, the firm — then known as ECS ICT Bhd — was listed on Bursa Malaysia.

In 2021, both of VSTECS’ founders passed away. Teo, its first chairman from 2010 to 2015, died in May at the age of 72 after a short illness. About six months later, Foo passed away at age 73.

VSTECS is an associate of VSTECS Holdings (Singapore) Ltd, one of the largest ICT distributors in Asia-Pacific, and a subsidiary of Hong Kong-listed VSTECS Holdings Ltd.

As at March 18, VSTECS was 44.926%-owned by VSTECS Holdings (Singapore), 12.394%-owned by Foo’s widow Lee Marn Fong @ Wu Marn Fong and 8.638%-owned by Dasar Technologies Sdn Bhd.

Lee, 76, is the non-independent non-executive chairman of VSTECS. Other prominent shareholders include Tokyo-listed IT firm Melco Holdings Inc and two Eastspring Investments funds.

Year to date, shares in VSTECS have more than doubled to settle at RM2.95 last Wednesday, giving the company a market capitalisation of RM1.05 billion. The counter is currently trading at a historical price-earnings ratio of 15 times.

Commenting on its stock price performance, Soong says VSTECS is in a unique position where the company can offer both growth and consistent returns to its shareholders.

“Our approach is balanced — we remain committed to growth, particularly through our focus on emerging technologies and strategic partnerships. At the same time, we understand the importance of providing value to our shareholders through dividends, ensuring that they benefit from our continued success.”

VSTECS paid total dividends of RM9.9 million in FY2019 and RM12.5 million in FY2020. The company increased its dividend payout to RM20.3 million in FY2021 and RM22.1 million in FY2022, further raising it to RM23.5 million in FY2023 — representing a dividend per share of 6.6 sen.

Its payout ratio has consistently remained above 30% over the past five years. As at June 30 this year, VSTECS’ net cash position stood at RM120.2 million.

Nevertheless, Soong acknowledges that like any other business, VSTECS faces potential risks. But to him, it is more important to take a proactive approach to mitigating them.

“Market volatility, credit risks, technological changes and competition are all factors we monitor closely. With 38 consecutive years of profitability and a 23% net profit CAGR over the last five years, we have demonstrated our ability to navigate challenges and maintain stability and even growth in uncertain times.” 

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