Analysts from UOB Kay Hian and Maybank Kim Eng have both lowered their target prices on Aztech Global, but have maintained their “buy” calls despite the company missing expectations for its 3QFY2021 results.
UOB KH’s John Cheong and Clement Ho adjusted their target price from $1.86 to $1.70, while Maybank KE’s Lai Gene Lih cut his target price sharply to $1.26 from $1.86.
In a Oct 15 report, Lai writes that the company’s 3Q profit after tax & minority interests of $18 million only made up 60% of the brokerage’s estimates, due to the worsening of the components shortage.
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As such, he cuts his FY2021-2023 PATMI forecasts by 11% to reflect FY2021’s reduced order book, and lowered expectations for FY2022-2023.
He notes the current order book for FY2021 delivery is $210 million, which he projects to a FY2021 revenue of $600.7 million (+24% y-o-y) – if there are no further delays in receiving components. However, this figure is a $79 million shortfall to his prior FY2021 expectation.
“Of the $426 million order book slated for FY2022, most should be delivered in 1HFY2022, and some in 3QFY2022. Management will work hard with suppliers to secure components, or even pull in components, where possible,” Lai writes.
He maintains his buy call as he believes that most negatives are priced in, and points out that the stock is undervalued.
Lai also thinks Aztech may also do share buybacks, which may buoy the share price in the near term. “However, we believe the stock won’t re-rate meaningfully until supply chain challenges have largely been alleviated. On that front, management expects components shortage to continue into the next 6-12 months.”
He prefers what he calls “chip shortage beneficiaries” for Singapore tech exposure, such as AEM Holdings, UMS Holdings, and Frenken Group.
Separately, while the UOB KH analysts also broadly agree with Lai, they note that Aztech’s 3QFY2021 results were “commendable” amid the global logistical and component challenges.
Cheong and Ho note that higher demand for IoT devices and data-communication products led to a 49% y-o-y increase in 9MFY2021 revenue to $391 million, and revenue from IoT devices and data-communication products grew 70% y-o-y to $368 million to account for about 94% of the group’s total revenue.
They also highlight that Aztech’s net margin has improved q-o-q from 11.4% in 1QFY2021, 12.1% in 2QFY2021 and 12.8% in 3QFY2021, due to better efficiency and the ability to pass on higher material costs.
Furthermore, they write that “9MFY2021 net margin of 12.1% exceeded our estimated net margin of 11.8% for 2021 and we see room for further upside in 4QFY2021 due to better operating leverage in the seasonally strongest quarter.”
Cheong and Ho are “cautiously optimistic” on the stock, in light of the healthy demand for IOT products, improving vaccination rate, strong orderbook and steps that were put in place to minimise production disruption due to power usage regulations.
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In addition to that, it’s share buyback mandate has been approved in its EGM on Oct 13, which could lift its share price.
On 18 Oct, CGS-CIMB's William Tng wrote in a report that Aztech has a "respectable performance in the face of component shortages". He is of the view that if there were no component shortages, 9MFY2021 revenue could have been 10-15% higher at $429 million - $449 million instead of the reported $390.7 million.
Aztech guided that as at Oct 14, it has an outstanding order book of $636 million, and the company expects to fulfill at least $210 million worth of these orders in 4QFY2021 and Tng thinks the group could deliver the remaining $426 million by 1HFY2022.
He adds that while Covid-19 remains a relevant risk, 93% of Aztech’s China workforce has completed two doses of the Covid-19 vaccination and 85% of its Malaysian workforce has achieved the same.
With its vaccination rate above 80%, Aztech has guided that it will be able to resume operating with its full workforce in Malaysia by the third week of October.
Management believes that the global component shortages will continue into the next 6- 12 months, but also notes that the company has not lost any customers or orders arising from the component shortages.
Despite this, he slashes his target price from $1.82 to $1.75, although Tng, like the other analysts, maintains his "add" call.
"Downside risks to our call are component shortages and Covid-19 related supply chain disruptions. New customer wins and stronger earnings could re-rate the stock," Tng writes.
As at 3.26pm, shares of Aztech traded at $1.08, with a FY2021 price to book ratio of 3.0 and dividend yield of 2.5%, according to Maybank KE.
