Analysts have stayed positive on manufacturer Aztech Global following its 1HFY2023 earnings that turned in strong sequential improvement in its 2QFY2023 ended June from the first quarter ended March, as the company maintained a healthy order momentum and efficiency gains.
With a slew of positive calls, the company’s share price ended July 24 at 79 cents, up 12.14%.
For 2QFY2023, Aztech Global generated earnings of $29.5 million, up 1.7% y-o-y but surging 120% q-o-q. This brings its 1HFY2023 earnings to $42.9 million, up 0.2% y-o-y. Revenue for 2QFY2023 was down 4.1% to $227 million, bringing total revenue for the six months ended June to $388.6 million, up 6.6%.
Michael Mun, Aztech Global’s chairman and CEO describes the 1HFY2023 numbers as a set of “resilient” results. “We remain committed to grow our business sustainably in the IoT space through continuous product and manufacturing development and innovation to ride on opportunities ahead,” he adds.
The company is known to make consumer electronics products for big name customers. It was listed back in March 2021 and started trading at $1.28.
Aztech Global, which is 70.24% held by Mun, has declared an interim dividend of 3 cents per share, implying a FY2023 payout ratio of 54%, higher than the target of at least 30%. The company did not pay an interim dividend this time last year.
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In his July 24 note, Maybank Securities analyst Jarick Seet notes that Aztech Global has improved its net margins from 12.3% in 2QFY2022 to 13% for 2QFY2023.
However, citing the company’s management, Seet notes that margins are to remain challenging due to the operating environment and inflationary pressures but will something the management will try to maintain.
Seet has maintained his “buy” call and 93 cents target price, which is pegged to 8x FY2023 earnings. The interim dividend, at current annualised levels, translates into a yield of 9.2%, according to Seet. “Aztech as it is one of the rare manufacturers with decent revenue and earnings growth in this tough climate,” he adds.
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Given the overall weakness in the manufacturing sector, UOB KayHian analysts John Cheong and Heidi Mo expect Aztech Global to continue to face a “challenging” operating environment in the current 2HFY2023 amid ongoing uncertainties at the economic and geopolitical fronts.
“Amid the high interest rates, volatile foreign exchange and inflationary cost environment, Aztech will focus on fortifying its strong balance sheet with prudent working capital, discipline cost and foreign exchange management,” write the analysts, who have nonetheless kept their “buy” call and $1 target price.
Similarly, DBS Group Research’s Ling Lee Keng, in her July 22 note, has maintained her “buy” call and $1.05 target price, which is pegged to 8.5x earnings.
She expects a “significant” portion of the company’s $594.5 million orderbook as at July 21 to be scheduled for completion this current year, which should, in turn, support her estimates that revenue for whole of FY2023 will grow by 9.3% y-o-y to $897 million and earnings for the full year will grow 30% y-o-y.
Going forward, the company says it is on track to put its new plant in Johor to work, thereby driving overall production capacity. The plant at Pasir Gudang, covering 300,000 sq ft, has already started trial runs.
Coupled with its two existing plants, one spanning 460,000 sq ft in China, and another 86,000 sq ft facility also in Johor, Aztech Global will now have a total space of 846,000 sq ft. The way Ling sees it, besides boosting capacity, the new plant will help Aztech better serve customers requiring product diversification.
William Tng of CGS-CIMB is thus far the most bullish on Aztech Global. Following the results, Tng has maintained his “add” call while raising his target price to $1.11 from $1.01 previously, citing how revenue and earnings for the current 2HFY2023 should come in higher than originally projected, as Aztech Global is in the midst of developing new products with customers.
For the coming FY2024 and FY2025, Tng has raised his revenue forecast by 11.8 to 15.9%, and earnings per share forecast for FY2023 to FY2025 by 2.0 to 13.5%.
For Tng, re-rating catalysts include potential new customer wins and more project wins from its main customer. Downside risks, meanwhile, includes component shortages and order cancellations due to an economic slowdown affecting demand and volatile foreign exchange rate movements affecting its financials.
