KUALA LUMPUR (July 27): BIMB Securities expects VSTECS Bhd (KL:VSTECS) to benefit from rising artificial intelligence (AI) adoption in Malaysia, with growing demand for cloud infrastructure and digital solutions as more data centres become operational by the end of 2026. 

In its initiation coverage, the research firm said the shift towards higher-value digital services is also expected to boost the company's profit margins, supporting its long-term growth outlook.

BIMB Securities has assigned VSTECS a target price of RM2.14, in line with the consensus target of other research houses covering the stock, implying a 20.2% upside from its current share price of RM1.77. The valuation is based on 17.2 times its financial year ending Dec 31, 2027 (FY2027) forecast earnings, with earnings per share expected to reach 12.6 sen. 

The research house believes VSTECS, one of Malaysia's largest information and communications technology distributors, is well-positioned to benefit from growing AI adoption, which is driving demand for cloud infrastructure, managed services, cybersecurity, and data management. These higher-value digital solutions generate better profit margins than traditional hardware distribution.

BIMB Securities also highlighted the company's improving financial performance, with its profit before tax margin rising from 2.8% in FY2021 to 3.6% in FY2025, while return on equity (ROE) improved from 15.0% to 18.7%. The gains were driven by its growing focus on cloud and digital solutions.

“We believe VSTECS warrants a premium valuation given its earnings visibility, net cash position, and stronger ROE compared with peers,” said BIMB Securities.

The firm also sees the group's enterprise segment as a key earnings driver due to recurring digital transformation projects that provide more stable revenue.

At the time of writing on Monday, VSTECS was trading 0.56% lower at RM1.77 a share, valuing the company at RM1.9 billion.