VSTECS announced 1H25 results: total revenue increased by 14% YoY to HK$45.5bn, representing 44% of our FY25E estimate; net profit was up by 36% YoY to HK$649mn, equivalent to 49% of our FY25E estimate. Strong demand for AI computing power drove strong revenue growth of cloud computing business (+68% YoY). As one of the leading distributors of AI chips and computing power in Asia, we expect VSTECS will continue to benefit from the growing demand for AI computing power. We maintain our FY25-27E earnings forecast largely unchanged. We raise our target price to HK$14.2 based on 15x FY25E PE (previous: HK$7.60 based on 8x FY25E PE), mainly to reflect larger AI-related revenue exposure. Maintain BUY.
　　Solid revenue growth in Southeast Asia. Revenue from enterprise systems/consumer electronics/cloud computing increased by 14%/7%/68% YoY to HK$25.7/17.2/2.6bn in 1H25. Revenue from Southeast Asia grew by 22% YoY to HK$16.7bn in 1H25, mainly driven by strong growth in Thailand (+50% YoY), the Philippines (+45% YoY), Malaysia (+31% YoY) and Indonesia (+30% YoY). The solid growth in Southeast Asia was primarily due to the robust government demand for digitalisation, and management expects the trend to continue in 2H25. Revenue from North Asia grew by 9% YoY to HK$28.8bn in 1H25, as the company executed a quality growth strategy.
　　Cloud computing business delivered robust growth. Revenue from cloud computing segment was up by 68% YoY to HK$2.6bn in 1H25, mainly attributable to the strong demand for AI computing power. The company continued to deepen cooperation with leading hyperscalers, with Alibaba Cloud/Huawei Cloud/AWS revenue up by 156%/29%/293% YoY in 1H25. VSTECS’s subsidiary Cloud Star also recorded a strong revenue growth of 63% YoY in 1H25, currently offering services in 7 of the 9 national intelligent computing centres in China. Looking ahead, Cloud Star will continue to expand its offerings, such as the MaaS platform and industry solutions.
　　Margin expansion on favourable revenue mix shift. GPM was up by 0.3ppts YoY to 4.8% and OPM expanded by 0.1ppts YoY to 2.0% in 1H25, mainly thanks to the favourable revenue mix shift to higher-margin cloud computing business. In China, the company will continue to execute quality growth strategy to control account receivables and operational risks; in Southeast Asia, it will capture the emerging opportunities such as AI computing and government digitalisation. We forecast net profit to increase by 18% YoY in FY25E.