VSTECS Holdings Limited (0856.HK) Earnings Call Transcript & Summary

Mr. Gu Sanjun is the Executive Director and CEO of VSTECS-China; Mr. [ Louis Loo ] Group CTO; Mr. Chan Hoi Chau, Executive Director; Mr. Li Yue, Executive Director. Now we would like to present to you a corporate video. VSTECS is a leading technology platform specializing in ICT industry solutions in the Asia Pacific. So the first go-to choice for [indiscernible] products to enter China and Southeast Asia. Our presence are in China, Thailand, Singapore, Indonesia, Philippines, Malaysia, Cambodia, Myanmar and Laos. Since listed, our revenue grew by 24%. Our [indiscernible]. We have realized a positive growth. And we have realized a surge 4.7% for our revenue and our is EPS is $0.44 by the -- June the 30th of 2025, our AUM is HKD 40 million, revenue reaching [indiscernible] billion. And our inventory days are 48 days. Account receivable days are 7 days. Account payable days are 65 days. Working capital days are 53 days. And our Southeast Asian business increased by 22.5%. Thailand increased by 50.4%. The Philippines increase by 45.4%. Malaysia increased by 31%. Indonesia increased by 29.9%. We have constructed a platform that performs localized service for international brands and platform for Chinese companies to go aboard. We are an important partner of Apple. Our business with Apple for Southeast Asia increased by 104% within the reporting period, and we utilize our resources and channels in overseas countries to help Chinese companies to go global. The domestic brands in Southeast Asia, grew by 35% in the first half of 2025. We have experienced a positive growth, an increase of 67.9%. And we have deep partnerships with the leading cloud vendors in China. Ali Cloud increased by 156%. Huawei Cloud increase by 29%, AWS increased by 293% and VMware increased by 295% within the reporting period. We continue to leverage our core competitiveness and our revenue increased by 63%. We embraced new changes and it's for new fronts. And we continue to explore different innovative technologies such as stablecoins and to enhance our cost of order payment efficiency and lower the foreign exchange loss. In the future, we will continue to create values in the ways our digital economy and bring returns to our shareholders and partners. Thank you. Now welcome, Executive Director and Group CFO; Mr. Ong Wei Hiam to present the 2025 interim results.

Good afternoon. For the VSTECS, interim results in 2025, we have several highlights, our revenue grew by 13.6%, reaching HKD 45.5 billion. Profit attributable to equity shareholders increased by 34.7% reaching HKD 610 million, EPS of $0.4406. ROE 13.7%, much higher than the Hang Seng Index average ROE, which is 10.94%. This page showcase our steady growth in revenue since listed. Our CAGR for growth is 24% since listed. We have also seen very stable growth in net profits. Our average annual growth rate is 28% from net profits. Into 2020 and 2021, we have seen explosive growth for net profit. It happened during the COVID times, and there were some panic buying and stocking situation. At that time, the inventory and the profitabilities were all performing exceptionally well. And compared to now, the interest rate was also lower, back then, and another factor is the exchange rates. The exchange rate was in our favor that time. So if we exclude these factors, our net profit actually continued to grow in recent years. And if we can exclude these exceptional factors, our net profit actually has made a new record for 2024. Next, let's see the revenue breakdown for business segments, Enterprise Systems increased by 14.1% from HKD 22.5 billion to HKD 25.7 billion this year. Consumer electronics grew by 7.5% from HKD 15.9 billion last year to HKD 17.2 billion this year. Cloud Computing grew exponentially by 67.9% from HKD 1.56 billion last year to HKD 2.61 billion this year. In total, we have seen the revenue growth by 13.6%, reaching HKD 14.5 billion. In terms of our geographical segments, North Asia increased by 8.9% from HKD 26.4 billion last year to HKD 28.7 billion this year. Southeast Asia grew by 22.5%. Increase from HKD 13.6 billion last year to HKD 16.7 billion this year. In total, we have seen 13.6% growth. And here, you can see the interest bearing debt to total asset ratio, which is 0.14. The suppliers give us very good [indiscernible] terms. So most of our business are conducted with interest-free, but it terms provided by the suppliers. So here, you can see the details of the interest-bearing liabilities. In terms of the working capital days, inventory days decreased from 49 days to 48 days this year. Account receivable days, 70 days, the same. Account payable days increased from 66 days to 65 days. Working capital days maintained at 53 days, which is around 1.5 months. It means that within 1.5 month, we can place the orders to receiving the money, which is an operation cycle. It's 53 days. Next. I would like to give you some review for the highlights for the first half of the year. Southeast Asia revenue grew by 22.5% in the video, as you can see. We have seen a rapid growth for many countries, which includes 50% for Thailand, 45% for the Philippines, 31% for Malaysia and 30% for Indonesia. And all these growth are driven by the digitalization of government business. And we believe that such growth will continue. Singapore is the only country that has a revenue decrease, which is down by 19% is mainly because of the 100% of revenue growth in the year 2024. It was mainly driven by the explosive growth of AI-related projects. And this year, we have seen some recovery or decrease in this part of the business. If we exclude this outlier factor, Singapore also has a nearly 35% growth. So for all countries of Southeast Asian region, on average, 30% of growth rate is within expectation. The strong demand for AI-computing has driven the explosive growth for our cloud businesses, we have mentioned earlier. We have seen the 67.9% of growth for our AI business. Ali Cloud increased by 156%. Huawei cloud increased by 29%. AWS increased by 293%. VMware increased by 295%. [ CloudStar ] also have attained a robust growth of 63% among the 9 national intelligent computing centers. ECS [ CloudStar ] provide services to 7 of them. In the first half of this year, we have won [indiscernible] projects, including [indiscernible], cloud brand, computing power, scheduling and operation management and/or artificial intelligence computing center and Shenyang Artificial Intelligence Computing Center. And we have been actively prepared to launch the multi-cloud management platform community version and AI computing power scheduling platform community version with an access to providing customers with simplified services and cost effective products. Our development strategies are several fold. First, we're committed to becoming one of the largest ICT industry in solutions technology platform in the Asia Pacific region. We focus on the information industry with huge potential and rapid growth. And our mission is to enable digital construction in Asia Pacific and maintained a leading position in the industry. We aim to build core competitiveness by improving operational efficiency and digitalization and steadily increase the scale of operation and a sustainable social values.

Thank you, Mr. Ong for the introduction. Now we will start the Q&A session. We welcome any questions from the investors and analysts. Please state your name and [ capacity ] before you raise your questions. Let's welcome the first question.

I'm Wong [indiscernible]. Very ideal interim results, and you have made progress in the different aspects. I have two questions. The first one is related to AI. In the past 6 months, we have seen a very good trend for AI and we have seen very good results for Southeast Asia. And judging from the Sino-U.S. trade conflicts, they are [indiscernible] some operations risks. So for the second half of the year for our strategy regarding AI, do we have any opportunities for some domestic products, especially for Southeast Asia, how do you balance the international business, international brands and the domestic brands. And the second question is related to [ CloudStar ]. After the launch of DeepSeek in the year beginning, you have seen a lot of development for [ CloudStar ]. So can you please share with us more details and planning for the business related to [ CloudStar ].

[CloudStar ]. Louis can respond. And let me respond to your first question. AI computing demand beneficial to us in two aspects. The first one is the AI infrastructure building, which has driven up the revenue for Southeast Asia. So most of them are infrastructure computing demand. And second, driver would be the usage of AI. As you can see, our cloud business has seen a good growth. For our cloud business is actually AI computing increased by 76%. So we have seen good growth in these 2 aspects, and we believe that such growths will be sustainable and domestic computing power. First, we have a partnership with domestic ecosystem [indiscernible] Digital. We are the biggest partner of [indiscernible] ecosystem. We are not the vendor. Therefore, we do not do any assembly. Assembly is a process with the capacity surplus, and that's why we are the exclusive distributor for Kunpeng and for Hygon chipsets. Before this year, apart from Hygon itself, we are the exclusive distributor for Hygon chipsets. Maybe my colleagues can make some additions to the informations. We should be one of the companies with the most comprehensive cooperation with ecosystem related to computing power. For CPU, we are the exclusive distributor for Hygon and the demand is very strong. For Kunpeng ecosystem, we have covered all the partners for Kunpeng ecosystem. This has driven our interim results in the first half of the year. We have also a presence in the domestic GPU [indiscernible] of NVIDIA, it's very hard for us to partner with them. But for the top 8 GPU, manufacturers, we have already reached a partnership with 6 of them. We will disclose such informations in due time. For [ CloudStar ], advantage of [ CloudStar ] is the multi-cloud management and the scheduling of computing power. Starting from this year, we have stepped up the investments, especially in R&D and also the AI capabilities and solutions. After the launch of DeepSeek, we have been exploring the machine with DeepSeek embedded. For second half of the year, we will continue to expand our capabilities. Firstly, we have the mass, which is an incubation platform for AI model in Dongguan, Guangzhou and Huadu. We continue to develop different models so that our enterprise clients can use the major LLMs in a format of token and this is one of our current capabilities, and we will continue to step up the investment in the LLM and use it as a token-based service. And secondly, for a DeepSeek machine, it would be very hard for the clients to use. That's why. In the past 6 months, we partnered with some industrial partners. For example, medical or education partners to develop the hardware and software. And we have developed some industrial-based solutions, and we are expanding the business in some vertical industries. And we have also adopted Huawei's open source ecosystem, especially in the data engineering and intelligent body development. We have already signed an agreement with Huawei. We will help Huawei to do tailor-made data engineering projects and also commercialized software. Apart from that, we can also see that a lot of domestic companies are facing quite pressure because of the macro environment, and they look forward to see more cost-effective products. And that's why we have the community versions of products, which is more lightweight and high performance. And next week, we will launch that on the Huawei A28 enterprise meeting. And in terms of the induction in the past, you need to have to 2 to 5 computers to form a pool. So for this small scale computing pool, we will also launch some community versions for clients that would like to use some AI induction. Second question, please.

I am Harry. Congratulations to your strong performance. I have two small questions. I'm very happy to see that your second growth curve, which is AI is very responsive, and you have launched the machine. Can you please share with us some prospects regarding AI business? What is the scale expected in 3 to 5 years? And with the AI growth, is it possible for us to create another record for our revenue. And then another thing is about different regions. You have a very extensive presence in Southeast Asia, and you have seen very good growth for major countries. Have you considered expanding into other markets in Asia, especially in the India who has improved their diplomatic relationship with China. Do you have any plans.

For regional expansion, we are now considering Vietnam, but for India, we have not given any consideration, and we have considered South Korea, Japan, Taiwan, Australia, but India, we haven't thought about it, but we can start thinking about it now. For AI, we have been involved in AI business for many years, but it is a very challenging starting point and it's very hard to have a very accurate forecast. We have invested in hardware and software. We have also hired lots of new talents, and we have expanded into new business segments. For the AI software, there were lots of peers [indiscernible] and for AI business and power business for us, they are still growing. And of course, we will spend no efforts in embracing AI for accurate forecast. Actually, we did not expect the 6% growth for AI business, this is not within our format. But we will do everything we can, and we will invest more in AI than before. Do we have any other questions?

We have accumulated some questions from our online platform. The next question is about the dividend strategy in the future. Can you please share with us the arrangements.

The strategy for dividend payout is to have a stable policy. We continue to maintain the dividend to payout ratio at around 35%, and there will be one dividend payout, which is the year-end dividend payout. We need to balance the development of our business and the dividend payout. We did not raise any funds in the past years, and we are now growing at a very good momentum. So at present, we do not have plans to increase the dividend payout ratio, but we will maintain the same level instead of adjusting it down. Do you have any plans for M&A in the future? We always have plans for M&A expansions, and we have the strong -- the strong intention for M&A and will speed up the process. Next question. Can you please share with us the results of guidance in the coming 2 to 3 years. It's hard for us to forecast the business in China, but there are many opportunities and overseas business. But there are lots of uncertainties for account receivables. And for Chinese business, we are very selective in our business, and we realized growth for China. But if we relax some of the controls, we can have even higher growth. For Southeast Asian business apart from Singapore, we have seen more than 30% growth of all countries. Actually, we have seen 30% of growth of Singapore, but there was a high base for Singapore last year, which is the AI server business more than 100% last year. If we exclude that outlier factor, Singapore also had more than 35% of revenue growth. So governments from Southeast Asian countries simply emitted in digitalization, which goes high demands for the investment in the computing power infrastructure. For our consumer electronics business, as we have mentioned, by 7.5%, and the enterprise system, which is the design for infrastructure actually go much higher than that. For all enterprises, we pursued to profit. We hope that our company can realize around 20% of our profit growth and revenue growth would be similar to that, but it is not our major target. Our target is to maintain high operation quality, but the guidance would be about 20% for revenue. Do we have any other questions on site?

Mr. Li, I have been following your company for a long time. Can you please share with us some technologies regarding cloud computing. Oh, sorry, can you please share us with the seasonality of AI business? Is there any seasonality for cloud computing, for example, for first half of the year and the second half of the year?

Around 40% to 60%, 40 to 60 for the first half of the year and the second half of the year or maybe 4.5 to 5.5. I don't see very obvious seasonality for our business. Do we have any more questions. If no, thank you very much for your questions, and thanks to the management for the results. This concludes today's results announcement. Thank you again for your long-term support, and we look forward to seeing you again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]