CGS-CIMB Research analysts William Tng and Izabella Tan have lowered their target price on Aztech Global to 96 cents from $1.22 previously as Aztech’s margins could remained under pressure due to supply chain, logistics and manpower issues.
As such, they have also cut their gross profit margin (GPM) estimates for the FY2022 to FY2024 by 0.5 to 1.0 percentage points. Aztech’s FY ends on Dec 31.
The lowered GPM estimates have led to a decrease of 3.8%-5.7% in the analysts’ earnings per share (EPS) estimates. Their EPS estimate for the FY2023, in particular, is lowered by 7.5% to 12.4 cents.
On the back of the lowered FY2023 EPS estimate, Tng and Tan’s new target price now values Aztech at 7.70x (0.5 standard deviations or s.d. below its two-year average forward P/E multiple) as the global economic outlook turns more uncertain.
The new valuation has led to the lowered target price, the analysts explain.
“Previously, we valued Aztech at 9.1x FY2023 P/E (two-year average forward P/E) as the economic outlook then was more robust. Aztech is currently trading at 5.92x [of] our FY2023 EPS. This is below its two-year (FY21-22) -1 s.d. forward P/E of 6.70x,” they write.
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Despite the lower GPMs, the analysts’ forecasts for the FY2022 – FY2024 remain unchanged as they think Aztech’s order book remains “fairly resilient”.
Ahead of Aztech’s results for the 3QFY2022 ended Sept 30, the analysts estimate that the company’s net profit could come in at $21.05 million, which is up by 16.9% y-o-y and 27.3% q-o-q.
Aztech will release its results at market close on Nov 3.
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“[Aztech’s] 3QFY2022 revenue was likely $217.44 million (+54.1% y-o-y/- 8.1% q-o-q). To recap, Aztech reported 2QFY2022 revenue/net profit of $236.6 million/ $29.0 million as the company executed well to meet order backlog in that quarter,” the analysts write. “In our view, Aztech may not have experienced net order cancellations but 3QFY2022 performance could hinge on cost management.”
In their report dated Oct 20, Tng and Tan have kept their “add” call on Aztech despite the target price and earnings cuts as they see Aztech’s net cash balance sheet as sufficient enough to help the company weather the downturn.
In addition, Aztech’s projected dividend yields of 7.96%-9.95% over the FY2022-FY2024 will provide some relief. The company’s EPS could still grow by 10.2% and 14.6% by the FY2023 and FY2024 respectively as well.
To the analysts, potential new customer wins, winning other projects from its main customer, and improving component shortages are re-rating catalysts. Meanwhile, they see more component shortages, Covid-19-related supply chain disruptions, and order cancellations by customers due to economic slowdown affecting demand, as downside risks.
Shares in Aztech closed 2.5 cents higher or 3.38% up at 76.5 cents on Oct 21.
