TOP THREE regional IT product distributor VST Holdings Ltd (HK: 856) saw its first half top line jump 23.3% y-o-y to 15.1 bln hkd backed by a 70% revenue exposure to the fast-growing PRC market and solid distribution contracts with hot-product owners like Apple and HP.
And CFO William Ong says a recent face-to-face meeting with Michael Dell, founder of the world’s No.2 selling PC is also proof that the relationship with the US firm has “flourished.”
VST distributes over 100 worldwide top IT brands, with product ranges covering all aspects of IT product applications and related enterprise solutions, with partners including household names like HP, Apple, AMD, Intel, Lenovo, Dell, Acer, Sun, Microsoft, Oracle and Cisco, to name just a few.
Mr. Ong presented VSTs interim results on Monday to investors and analysts as part of Aries Consulting’s Company of the Month series.
The solid top line growth helped the company achieve a 7.2% net profit rise to over 224 mln hkd.
“While the IT distribution market is growing at around 10% annually, we tend to grow a little bit faster because of our larger market share and our economy of scale,” he said.
Mr. Ong added that VST’s flawless loan facility repayment record also opened more doors to financing needs as they arose.
“We are never late on any payment, and we strive to maintain this record which helps us negotiate with vendors for credit terms. This record is the loudest voice of support for us.
“Banks are quite supportive of our business and tend to give us financing ahead of the smaller guys, so we tend to grow a bit faster.”
Part and parcel of VST’s success over the years has been an ability to win distribution deals with the heavy hitters, with heavy exposure in some of the fastest growing markets in the world.
“One-fifth of all our business is HP-related, and we have 20 years of cooperation between us. We also have been working with Apple for 15 years and we are the only listed firm currently distributing their iPads in the PRC,” Mr. Ong said.
And that has been quite a windfall relationship for VST.
“Apple’s iPad is one of the hottest products out there, so this has contributed quite a bit to our top line. Nothing beats the iPad right now.”
He explained that just a few short years ago, Apple contributed just 5% of VST’s total revenue, but that this number had already doubled as of now.
“Apple, Dell and Asustek are doing especially well in the PRC recently with growth approaching 200% for some, and we have distribution deals with all three.”
But despite HP being VST’s biggest partner, and notwithstanding the phenomenal success of a wide range of Apple products – especially in the PRC market where some of the California-based firm’s busiest stores are located – Mr. Ong said the company was not putting its eggs all in one, or two, baskets.
He said a recent lunch meeting with Michael Dell in Beijing – founder of the eponymous PC firm – was eye-opening and an excellent platform upon which to boost cooperation with one of VST’s major partners.
Dell, which for years had been one of the chief practitioners of the direct sales model, was increasingly looking to distribution models like VST’s to boost sales around the world.
“Michael Dell told me that dell.com has always been around, and hopefully always will be, and we understand that and are fine with that. But he also realizes that for some markets, the distributor model is the most important sales platform to penetrate the mass market,” Mr. Ong said.
“Direct online sales will always be an option. But retail chain stores will also remain and they will survive and help push the market. To penetrate the mass market, vendors need more than just online sales.”
Mr. Ong added that companies like Dell realized that the distributor sales model was a more efficient and cost-effective way to penetrate fast-growing markets like Mainland China and Southeast Asia, because they were often more fragmented and it was easier for vendors to find success going through distributors.
“Traditionally, Dell has preferred direct sales and didn’t really like going through distributors, But our recent lunch with Michael Dell shows just how much our relationship has flourished, and we do have exclusive distributor deals in places like Southeast Asia. I believe that for IT products, the distribution model is the most cost-effective way to get products to market, including Dells.”
“But,” he repeated for emphasis, “nothing beats the iPad right now.”
While VST was confident that it could peacefully coexist in a world where consumers embraced both distributor-led and direct sales, the company also felt it did very well in direct competition with its peers.
“We are one of the top three IT product distributors in the region, so this gives us tremendous advantages. Also, as for other distributors, our competitive advantage is that we are a regional power,” Mr. Ong said.
He said the company would continue to expand rapidly, especially in the PRC and Indonesia.
“China will continue to be our most important market but we see new opportunities in India, Vietnam and Laos. This year we expect all countries to maintain their current revenue growths and we should have continuous growth from our existing product portfolio.”
VST was committed to adding new business line expansions such as emerging new technologies and service business growth.
“We will continue to seek new vendors to enhance group product portfolio such as for smartphones, tablets and accessories."
As for the company’s inventory days, the figure currently stood at 34, which Mr. Ong said was consistent with the industry average.
“After the April earthquake in Japan, there was a lot of speculation that there would be component shortages so we stocked up a bit. But fears of shortages were somewhat overblown and we have begun reducing inventories.
“Our near term goal is to get it to below 30 days again.”
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