VSTECS reported FY24 financial results: total revenue was up by 21% YoY to HK$89.1bn, 7/8% ahead of our/Bloomberg consensus estimate, mainly thanks to the robust demand for AI solutions and strong revenue growth of South East Asian business; net profit grew by 14% YoY to HK$1.05bn, 10/6% ahead of our/ consensus estimate. The company continues to gain share in the cloud management and AI computing operation market, supported by its strong development and service capabilities in the cloud and AI field. Cloud computing and AI business revenue was up by 35% YoY to HK$7.7bn in FY24. Looking ahead, management expects to maintain 15-20% earnings growth over FY25- 27E, driven by the AI solutions, cloud computing and IT localisation opportunities. We lift our FY25/26 net profit forecast to HK$1.32/1.52bn (previous: HK$1.06/1.17bn) to factor in the results beat, and raise our target price to HK$7.60 based on 8x FY25E PE (previous: HK$7.20 based on 10x 2025E PE). Maintain BUY.
　　Robust growth in South East Asia market. Revenue from enterprise systems/consumer electronics/cloud computing grew by 30%/8%/28% YoY to HK$52.3/32.8/3.9bn in FY24. Revenue from South East Asia was up by 74% YoY to HK$30.7bn and represented 34% of total revenue in FY24, mainly driven by the robust demand for AI data centres in Malaysia and Singapore, as well as the consolidation of a Philippine subsidiary. Revenue from North Asia grew by 4% YoY to HK$58.4bn in FY24, equivalent to 66% of total revenue.
　　Expanding presence in AI and cloud computing field. Revenue from AI and Cloud Computing businesses grew by 35% YoY to HK$7.7bn in FY24, accounting for c.9% of total revenue. VSTECS continues to outpace sector growth, with its revenue share in China’s third-party cloud management market up by 0.4ppt YoY to 4.2% in FY24, as per IDC. In FY25, VSTECS will further deepen its partnership with leading cloud platforms such as Alibaba, Huawei and AWS, in order to penetrate into lower-tier cities, localize database products and drive sales of high-end products. VSTECS will increase its R&D spending in the AI field by over 50%, expand DeepSeek service offerings to over 30 data centres under its management, and leverage AI technology internally to improve operating efficiency.
　　Steady margin and shareholder return. GPM was down by 0.3ppt YoY to 4.4% in 2024, primarily due to the intense competition in the domestic market and increased revenue contribution from AI server distribution, which tends to have a lower GPM. OPM was stable at 1.9%, attributable to the enhanced operating efficiency. The company declared final dividends of HK$369mn, which is flat YoY and account for 35%/4% of net profit/market cap. Management expects to maintain a similar level of dividends in the future as it will invest in new growth opportunities such as AI.