Analysts from four brokerages have maintained their “buy” calls on Aztech Global, but have differed on their target price forecasts in the wake of Aztech Global’s 1HFY2022 results ended June.
DBS slashed its target price from $1.33 to $1.18, while UOB Kay Hian reduced its estimate from $1.55 to $1.46.
CGS-CIMB, however, has raised its target price from $1.16 to $1.22, and Maybank has also raised its target price from $1.13 to $1.39.
Aztech reported 45.6% higher net profit y-o-y to $42.8 million for the 1HFY2022 ended June, and its revenue grew 46% y-o-y to $364.6 million for the period.
Despite this, no interim dividend has been declared, with Aztech saying it intends to conserve cash and recommend dividend payments annually together with its full-year results. Previously for FY2022, the company paid a final dividend of five cents per share.
UOB Kan Hian analyst John Cheong says that in the company’s 2QFY2022, its earnings beat expectations due to stronger productivity in the absence of production disruption.
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The company’s net profit of $29 million, which was 79% higher y-o-y and 109% higher q-o-q is above his forecast of $18 million.
This was due to productivity and operational efficiency gains arising from the fulfilment of critical mass orders at its manufacturing facilities in Dongguan, China and Johor, Malaysia.
“The strong results were also aided by efficient coordination of components availability, execution and delivery of customer orders,” Cheong points out.
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DBS’s Ling Lee Keng, who issued her report before Aztech released its results, was of the view that the company’s strong order book was a point to note, saying that it is riding on the fast-expanding IoT market with over 90% revenue exposure.
Aztech’s outstanding orderbook as of April 18 stood at $713 million, an improvement from $496 million as of Dec 31, 2021.
“We expect the order momentum to remain strong, translating to a revenue growth of 21% in FY2022 and another 15% in FY2023.”
However, she expects margin pressure to persist in the near term. Aztech reported a lower net margin of 10.8% in 1QFY2022, down from 11.4% in 1QFY2021 and 11.9% for the full year of FY2021, mainly due to inflationary cost pressures and supply chain bottlenecks.
With rising inflation, the still challenging supply chain environment, and the lockdowns in China in 2QFY2022, we expect further margin pressure for Aztech in 2QFY2022.
“As such, due to this persistent margin pressure and risk of weakening demand, we have trimmed earnings for FY2022 and FY2023 by 3% to 4% each,” Ling says.
She does warn of some risks for Aztech, such as customer concentration risks and operational risks for the Dongguan factory. CGS-CIMB’s William Tng notes that Aztech’s Customer A accounted for about 80% of 1HFY2022 revenue, compared to 65% of revenue in 1HFY2021.
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Separately, Tng also notes that the company’s management is positive on its long-term outlook, saying “management is optimistic about the demand for IoT devices and data communication products, and will continue to focus on operational excellence to manage the uncertain environment.”
He also highlights that demand for Customer A’s smart security cameras continues to be strong, and the component shortages situation has improved. This is in contrast to Maybank’s view, which says that the component's situation remains challenging.
Maybank’s Lai Gene Lihh says that to overcome this, Aztech’s strategies are redesigning components, searching for alternative suppliers, and giving suppliers longer lead times.
However, the Covid- 19 situation - especially in China -, supply chain-related risks and cost pressures will continue to be headwinds in the second half of 2022, Tng says.
As at 11.31am, shares of Aztech were trading at 86 cents, with a FY2022 P/B ratio of 1.8 and dividend yield of 4%, according to DBS.
