Fortress Minerals
Price target:
Phillip Securities “buy” 64 cents
Higher price target as iron ore prices soar
With iron ore demand and prices expected to rise ahead, Phillip Securities analyst Vivian Ye has maintained her “buy” rating for Fortress Minerals with a higher target price of 64 cents from 47 cents previously.
Ye expects the iron ore mining company’s production to increase 10% in FY2022 ending February 2022. She has also raised the company’s FY2022 average sales price for iron ore forecast to US$102 ($135.30) per dry metric tonne (DMT) from US$98 per DMT.
According to Phillip Securities, Malaysia’s production of iron and steel bars and rods has increased 4.3% m-o-m in January and 16% m-o-m in February.
This could be attributed to the Malaysian government’s increased resources for the construction sector, as the economy tries to stage a recovery from the pandemic, it explains.
See also: Test debug host entity
Iron ore prices have hit a 10-year high as iron ore supply from Brazil, the world’s largest supplier, could face uncertainty due to harsh weather.
Phillip Securities believes iron ore prices will remain above US$110 per dry metric tonne (DMT).
Iron ore prices are currently trading at about US$170 per DMT.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
“Outlook remains positive for [Fortress Minerals],” writes Ye in a note dated April 25. — Jeffrey Tan
Singapore Exchange
Price target:
UOB Kay Hian “buy” $12.35
Resilient income stream from multiple sources
UOB Kay Hian has become the latest brokerage to track the Singapore Exchange, rating the bourse operator a “buy” with a target price of $12.35.
UOB says SGX’s multi-asset platform ensures that it has a resilient revenue stream from several sources, writes analyst Lucas Teng in his April 27 note.
This includes a wide range of liquid futures and options products in key asset classes, such as equities, currencies and commodities.
For more stories about where money flows, click here for Capital Section
Its traditional stock exchange business could also see a lift from the potential secondary listing of Grab and Sea.
Teng believes that SGX’s daily average volume could improve by 6% to 40%, assuming there is no leakage in trading volume from other large caps. He expects SGX’s revenue and earnings to grow at a compounded annual rate of 3.9% for FY2019–FY2023.
“We opine that any new initiatives — [such as special purpose acquisition companies and secondary listings] — could potentially rerate SGX to trade closer towards its developed markets counterparts of similar size,” writes Teng. — Jeffrey Tan
Aztech Global
Price target:
UOB Kay Hian “buy” $1.86
Maybank Kim Eng “buy” $1.86
CGS-CIMB "buy" $1.91
Riding high on ‘Customer A’
Analysts have initiated coverage of Aztech Global just a month after its IPO, with generally bullish ratings. UOB Kay Hian and Maybank Kim Eng both tagged on a target price of $1.86 while CGS-CIMB is even more optimistic with a $1.91 call.
Maybank’s Lai Gene Lih forecasts Aztech’s earnings to grow at a CAGR of 23% from FY2020–FY2023. This will be driven by the so-called “Customer A’s” existing and new products, as well as from contributions from new customers in the IoT and data-communications segment.
Lai cites a study by Frost & Sullivan, which expects the consumer IoT industry to enjoy a CAGR of 23.4% during 2019–2023.
“We see Aztech as a proxy of this through the smart security cameras and other new products for Customer A (a US-listed e-commerce retailer), wallet share gains from Customer C (a German smart-home technologies company) and new IoT & datacom customers and products,” writes Lai in his April 22 note.
He believes Aztech’s industry net margins (11.5% in FY2020 ended December 2020) are a result of strong execution for customers, R&D capabilities and consumer IoT being early in its technology lifecycle.
Lai adds that R&D helps Aztech engage customers early in product conceptualisation, and also enables rapid commercialisation of emerging trends.
To cope with rising volumes, as well as customers’ requests to have production based outside China, Aztech intends to double its manufacturing capacity through a new plant outside of China, with the initial stage estimated in 1QFY2022. “This diversifies geographic risks from diseases, trade tensions, and disasters,” writes Lai.
For FY2022, Aztech is trading at 10 times P/E, and the $1.86 target price infers 12.9 times earnings, which is deemed a more attractive level relative to peers such as Valuetronics and Venture Corp, which are trading at 12.2 times and 15.5 times for three-year EPS CAGR of –9% and +10% respectively.
He warns, however, of key risks, including customer concentration, competition and commoditisation in the middle to long term as well as risks to its Dongguan facility.
Similarly, UOB Kay Hian’s John Cheong and Clement Ho see Aztech as “well-positioned to ride on the high growth in IoT products via its “Customer A”. They expect a three-year earnings CAGR of 33.8% for 2020–2023, on more order wins from Customer A and order growth from IoT products.
They also highlight Aztech’s “solid track record of over 30 years”, saying it has a proven ability to capture prevailing consumer electronics trends. “Before venturing into the manufacturing of high-growth IoT products in 2018, Aztech had already proven its ability to adapt to new market trends, including the production of sound cards in 1991, ADSL modems in 1996, fibre gateways in 2006, and LED lighting products in 2010,” write Cheong and Ho, noting how Aztech has transformed from being an OEM that only makes products based on customers’ specifications, into a full-fledged ODM that develops in-house products to be sold under customers’ brands.
It is also a joint design manufacturer (JDM) offering solutions that are used in collaboration with customers in the design and R&D of new products. Furthermore, the analysts note Aztech has diversified manufacturing facilities with strong in-house R&D core and robust growth plans.
Aztech has two manufacturing facilities in Dongguan, China, and Johor, Malaysia, and its new manufacturing plant in Malaysia enables it to serve customers that are looking to transfer their operations out of China.
In addition, they say Aztech has a strong in-house R&D core comprising four R&D centres and a 131-strong team that are able to develop new products and provide technical advice to improve manufacturability. — Lim Hui Jie
