PETALING JAYA: VADS Bhd offers investors a safe haven with its high proportion of recurring sales and solid growth, say analysts.
OSK Research in its latest report said VADS’ current order book stood at over RM400mil, of which 55% was from its managed network services division and the balance from contact centre services (CCS) and business process outsourcing (BPO).
“The CCS segment will remain the fastest growing over the next three years while VADS continues to enjoy tax-free status under MSC (Multimedia Super Corridor),” the report said.
Currently, Telekom Malaysia Bhd and TM International Bhd contracts make up 80% of VADS’ CCS revenue, providing steady and recurring CCS sales for the company.
RHB Research Institute in its report concurred with OSK Research, saying that the company’s growth was likely to come from its overseas contracts as VADS was eyeing about five sizeable offshore CCS contracts this year.
“Management expects external factors such as escalating contact centre costs in the US and current unfavourable exchange rates for India and the Philippines to drive US multinational companies to locate contact centre operations to other countries especially Malaysia,” the report said.
However, over the long-term, VADS plans to focus on the more lucrative BPO segment to drive earnings, citing abundant potential both locally and overseas, according to OSK Research.
“VADS is targeting a few BPO outfits in the Philippines and does not discount a potential acquisition in the cards,” the report said, adding that the management was also in talks with a few multinationals in the US for new outsourcing deals.
OSK Research added that the management was bidding for a large public sector project, which involves the provision of a wide area network management with its parent company.
“The contract was previously farmed out to another listed entity but the government does not intend to renew the contract and has called for a fresh tender. Given the strong proposition that the group brings to the table, we believe it is well positioned to secure the contract,” said the research house.
OSK Research has a “buy” recommendation on the counter with a target price of RM8.50, stating that while the cautious economic outlook had a negative impact on information technology spending, there was earnings downside risk for VADS.
“Based on historical precedence, revenue and earnings momentum were not affected by major economic shifts, notably the previous Asian financial crisis,” OSK Research said.
Meanwhile, RHB Research Institute maintains its “outperform” call on the company with a target price of RM7.94.