Vetece Holdings Berhad - IT revolution solutions for digital age
Fri, 18-Oct-2024 08:23 am
by Team Coverage • Apex Research

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VTC (0319)

Target Price (RM)

0.46

Recommendation

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Summary

Enterprise IT solutions provider specialising in consulting, design, development, testing, operation, and maintenance.

VTC's clientele includes well-known companies including China Construction Bank, Telstra Corporation Limited, and Telekom Malaysia Berhad.

We recommend subscribe to Vetece, with RM0.46 fair valuation based on 15.7x PE multiple, which represents 10% premium to the selected peers involved in ICT solutions that is justified by superior earnings growth prospects, which are anticipated to materialise in FY25F.

 

Investment Highlights

  • Impending growth from Singapore operation. VTC is focused on enhancing its presence within the Asia-Pacific region by expanding operations in Singapore, leveraging the city-state's role as a gateway to the region. The Group has set an ambitious goal to increase overseas contributions to c.50.0% in the next 2-3 years, up from the current 4.0%. Looking ahead, we anticipate significant growth in VTC's bottom line for FY25, thanks to the newly secured contract from Singapore. 

  • Collaboration with a prominent industry leader. VTC's close collaboration with key market leaders offers several advantages, including deeper market insights, access to cutting-edge technologies, and enhanced credibility. These partnerships enable the group to anticipate IT solution demand, integrate innovative products, and strengthen its competitive position. Additionally, co-innovation opportunities and improved client relationships further drive growth and expand the company’s market reach.

 

  • Stable customer base. VTC maintained a long-standing relationship with Telekom Malaysia Berhad for over 17 years. Between FY21 and FY23, Telekom's revenue contribution to the Group has grown significantly, from 15.7% to 45.6%. Although this does pose a concentration risk for VTC, we reckon the Group will be able to foster customer loyalty due to demand for maintenance and support services given its involvement in the initial implementation phase. To date, the Group managed to replenish RM4.6m worth of orderbook from Telekom, representing 30% of the total orderbook (RM15.5m).

  • Demand driven from big data and AI. With the rise of open-source platforms and cloud services, AI and Big Data solutions are becoming more accessible not only to large tech companies but also to smaller businesses. As AI computing continues to evolve and more complex, demand for big data has significantly increased. To capitalise on this growing trend, VTC will utilise part of the IPO proceeds to roll out new AI-driven data handling and analytics solutions. VTC intends to establish partnerships with two new or existing technology partners specialising in AI-driven data handling and analytics to gain access to essential software, resources, training materials, and user guides. We opined that the Group exposure in data analytics, data integration, cloud platforms, and the management of storage and physical servers will enable VTC to ride on the big data boom.

 

Valuation & Recommendation

  • At an IPO offer price of RM0.25, VTC’s forward PE valuation for FY24F and FY25F is projected at 18.4x and 8.5x, based on our estimated FY24F and FY25F EPS of 1.4 sen and 3.0 sen respectively. We arrived at our fair value of RM0.46 (85.8% potential upside from its IPO price) by assigning a target PE of 15.7x to its FY25F EPS. 

  • We assign a 10% premium to the selected peers involved in ICT solutions, with an average forward P/E of 14.3x. We believe the higher P/E is warranted compared to the peer average, supported by VTC’s superior earnings growth prospects, which are anticipated to materialise in FY25F.

  • We foresee VTC to capitalise onto the advancement of AI, as the complexity increases, requiring larger data set for analytics. Furthermore, we also favour VTC for its sizable contribution from its recurring income base. We expect the newly secured contract to further strengthen this base, driven by increased demand for maintenance and support services following successful client onboarding.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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