20180321-兴业金融证券-伟仕佳杰-00856.HK-Focusing_On_Higher_Margin_Businesses_9页_381kb

VST Holdings Ltd Summary

Core Content and Key Highlights

VST Holdings Ltd (VST) is a leading original equipment manufacturer (OEM) and consumer IT distributor in China and Southeast Asia, offering products from brands like Seagate, Apple, and HP. The company is also expanding into enterprise systems, cloud and big data analytics, and network and data security. In FY17, VST delivered strong results, surpassing both consensus and forecasted expectations in terms of revenue and net profit growth.

Main Points

• Strong FY17 Performance:

  • Revenue grew by 13% YoY, 3% above forecast and 4% above consensus.
  • Net profit increased by 30% YoY, 6% above forecast and 10% above consensus.
  • The company's focus on higher-margin businesses, such as IT and cloud services, contributed to margin improvements.

• Segment Performance:

  • Mobility and digital devices segment was a key driver of revenue growth, with 24% YoY growth. However, it remains low-margin.
  • Enterprise business (now cloud and big data) and network and data security segments are expected to see accelerated growth.
  • The company added 40 new product lines in the mobility and digital devices segment, including smartphones, wearables, and speakers.

• Margin Improvement:

  • The GPM (Gross Margin) and NPM (Net Margin) improved, driven by the shift towards higher-margin businesses.
  • VST is increasing its system integration work and cloud services, which have 15% GPM and are significantly higher than the company average.

• Earnings Growth Forecast:

  • The company is forecasted to achieve a 21% CAGR in earnings from FY17 to FY20.
  • Recurring net profit is expected to grow from HKD716m in FY17 to HKD1,270m in FY20.

• Valuation and Target Price:

  • The target price is HKD5.64, which is 25% upside from the current price of HKD4.50.
  • The recurring P/E ratio is 7.2x for FY18F, which is lower than the peer average of 9.6x, but the company's dividend yield is attractive at 4%.
  • P/B (Price to Book) is decreasing, from 1.68x in Dec-16 to 0.79x in Dec-20F, indicating a potential value proposition.
  • EV/EBITDA is also expected to decline, from 9.78x in Dec-16 to 4.38x in Dec-20F.

• Dividend and Shareholder Information:

  • Dividend per share (DPS) is expected to increase from HKD0.15 in Dec-17 to HKD0.27 in Dec-20F.
  • Shareholders' equity is expected to grow from HKD3,864m in Dec-16 to HKD8,060m in Dec-20F.
  • Founder & family holds 37.7% of the shares, while Eternal Asia (HK) and FMR hold 17.1% and 10.0%, respectively.

• Financial Metrics:

  • Recurring EPS is expected to increase from HKD0.37 in Dec-16 to HKD0.89 in Dec-20F.
  • Net debt to equity is projected to decline from 58.6% in Dec-16 to 28.2% in Dec-20F, reflecting improved financial health.

• Key Drivers of Growth:

  • Enterprise systems business.
  • New businesses such as internet loans.
  • Supply chain improvements.

• Key Risks:

  • Greater-than-expected depreciation of Asian currencies against the USD.
  • Higher-than-expected investments for new initiatives.

Investment Recommendation

• Analyst: Yujie Li
• Rating: Buy (maintained)
• Target Price: HKD5.64
• Price: HKD4.50
• Market Cap: USD838m
• Bloomberg Ticker: 856 HK

Summary Table

Share Performance

Investment Outlook

• The buy recommendation is maintained based on 9x FY18F P/E, despite the company's smaller size compared to peers.
• The dividend yield is expected to grow to 6% by FY20F, making it more attractive for income-focused investors.
• The target price is based on the same P/E ratio, indicating confidence in the company's future performance.
• Key risks include currency depreciation and increased investment requirements for new initiatives.

Conclusion

VST Holdings Ltd is positioned for sustained growth due to its focus on higher-margin businesses and diversification into cloud, big data, and internet finance. While its revenue and profit growth are strong, near-term earnings contributions from new initiatives are expected to be minimal. The dividend yield is a key attraction, and the target price reflects positive expectations. Investors should be cautious of currency risk and investment demands but may consider buying based on the attractive valuation and growth potential.