CGS-CIMB’s William Tng has initiated coverage on Aztech Global with a “buy” rating and a target price of $1.91.
This comes after Aztech reported earnings of $13.2 million for the 1QFY2021 ended March, 22 times higher than the $0.6 million recorded for 1QFY2020. At the same time, revenue grew 211% y-o-y to $115.9 million from $37.3 million previously.
The higher revenue was driven mainly by strong production volume and shipment of IoT and Data-communication products to customers that boosted revenue from this segment to $106.3 million.
Tng notes smart security cameras manufactured by Aztech were voted among the top ten best smart security cameras for 2021 according to Safewise.com.
In addition, with the global IoT market set to deliver a 20.8% compounded annual growth rate (CAGR) and reach US$425.2 billion by 2023, he believes decreasing average prices of IoT sensors will further accelerate adoption rates.
IoT-related revenue accounted for about 88% of Aztech’s FY2020 revenue, and Tng believes it should drive future net profit growth, given its higher margin profile.
From their company visit, Tng notes a factory expansion of 89% to about 86,000 square feet is underway at Aztech Johor Bahru plant in Malaysia.
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Furthermore, he highlights that Aztech’s Customer A’s has guidance for an over 30% increase in volume production of its smart security cameras in FY2021, and adds that Customer A is a major customer accounting for over 60% FY2020 revenue
Finally, Tng notes Aztech’s expectation of a stronger order book and to potentially start manufacturing a new line of products for Customer A in 2H2021.
“We believe Aztech’s smart security cameras offer a compelling price-performance trade off based on our analysis of current market offerings to remain popular among consumers. We forecast Aztech to register a 18.4% net profit CAGR to achieve net profit margins of 11.6%-11.9% between FY2021-2023.” he writes.
In his note, he also observes that as at end-1QFY2021, Aztech has secured 11 new customers and projects, of which they are the sole supplier to two new lines of products of Customer A.
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Management expects to see contributions from new contract wins to come in FY2022, and Tng believes “as consumers continue to invest in the smart home ecosystem, this offers an opportunity for Aztech to further expand its IoT product manufacturing portfolio within the smart home value chain to drive its multi-year earnings runway.”
As at 2.22pm, Aztech was trading at $1.41, with a price to book ratio of 3.65 and dividend yield of 2.11
