Analysts from CGS-CIMB Research, UOB Kay Hian, Maybank Kim Eng and DBS Group research have given “buy” or “add” ratings on Aztech Global, with target prices of $1.82, $1.86, $1.86, $1.74.
UOB KH and Maybank have kept their target prices unchanged, but CGS-CIMB’s target price has been lowered from its previous figure of $1.91. DBS also lowered its target price to $1.74 from $1.85.
CGS-CIMB’s William Tng and Darren Ong write that the lower target price was due to them taking into account operational risks from component shortages and Covid-19 related supply chain disruptions.
See also: Aztech’s 1H earnings more than double to $29.4 mil
They do note, however, that Aztech’s 1H earnings have come in “in line with expectations”, posting revenue of $249.7 million and PATMI of $29.4 million, which represents a 93.4% and 125.9% y-o-y increase respectively.
The strong growth was mainly driven by its IoT and data communication segment, which delivered 128.7% y-o-y revenue growth to $232.6 million.
Aztech’s net profit margin expanded to 11.8%, up 1.7% y-o-y, helped by strong demand for its IoT and data communication products which commanded higher margins, as well as better operating cost controls and tax incentives for its China operations.
They also say that the company’s order book growth continued to gain strong traction, registering 24% growth from 1QFY2021 to $604.4 million as of end-July 2021.
UOB KH analysts John Cheong and Clement Ho described the results as “commendable”, given the lockdowns in China and Malaysia. They also highlighted the strong demand of IoT and data communication products, and added that this was due to the successful take-up of products sold by Customer A, Aztech’s largest client, to end-consumers.
Tng and Ong foresee that demand for its products will still remain strong, but “execution is key”, elaborating that demand continues to outpace supply, but getting components remains a challenge. “In our view, Aztech’s 2HFY2021 performance hinges on its ability to secure enough components to fulfil customers’ orders,” they write.
Maybank KE’s Lai Gene Lih says that Aztech believes the shortage of components could persist into mid-to-end 2022, especially datacom products, even as Customer A has so far been able to help Aztech secure components.
Lai highlights that inventory rose 72% h-o-h to $92.4 million, with the increase largely driven by Aztech’s efforts to secure components.
Furthermore, he adds that Aztech has accelerated the phasing out of LED to make space for IoT products, which is more profitable and require less production space. With this, Aztech has enough capacity to accommodate customer requirements through 2022.
DBS' Ling Lee Keng also projects net margins of 11.8% in FY21F and 11.9% in FY22F, driven by the strong growth in the IoT market and the group’s continuing efforts to improve productivity and efficiency. "This should lead to robust earnings growth of more than 30% in FY2021 and FY2022," she thinks.
Ling is also more cautious about the component shortage affecting Aztech, saying that she expects the situation to worsen in 2HFY2021 and to see an improvement only in 2022.
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Going forward, the analysts from all the brokerages note that management aims to maintain its 11.8% profit margin in 2HFY2021, with Maybank KH and UOB estimating revenue of about $450 million, assuming all orders come in.
As at 3pm, shares of Aztech were trading at $1.23, with a FY2021 price to book ratio of 3.45 and dividend yield of 2.26% according to CGS-CIMB.
