Analysts from UOB Kay Hian and Maybank have given differing calls over Aztech Global in the wake of its 3QFY2022 ended September results.
UOB Kay Hian’s John Cheong maintained a “buy” rating on the stock and raised his target price to $1.05 from 99 cents, while Maybank’s Jarick Seet has maintained his “hold” rating and lowered his target price from 83 cents to 79 cents.
The main difference between the analysts is that for Cheong, the company’s 3QFY2022 results were “in line with his expectations” while for Seet, it was “below his expectations”.
According to Cheong, Aztech’s 3QFY2022 net profit of $20.8 million is largely in line with his forecast of $22 million, and the 9MFY2022 earnings of $63.7 million (34.2 higher y-o-y) account for 71% of his FY2022 estimate.
His view is that the results were aided by efficient coordination of components availability, execution and delivery of customer orders.
Specifically, the increased earnings can be attributed to gains from improving productivity and operational efficiency achieved in the fulfilment of critical mass orders, cost control measures, and an increase in interest income due to a higher fixed deposit rate.
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However, this was partially offset by the fair value loss on financial derivatives totalling $15.4 million, due to the weakening of the Chinese renminbi relative to the US dollar.
He notes that Aztech’s order book remains stable with a “three-pronged component management approach” for component tightness, where the company actively collaborates with customers on design changes to use alternative components, leverages close working relations with suppliers, and expands its supplier base.
Cheong also describes the company’s orderbook remaining “resilient amid global uncertainties”, having fallen only 0.8% to $820.5 million as of Nov 3 compared to $827 million as of July 25. By 4QFY2022, $210 million is planned for completion.
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Moving forward, Cheong is optimistic about Aztech’s 2023 business outlook. This is due to several mitigation measures and growth focuses in place to tighten its forex risk management and maintain its market position.
“Aztech expects its operations to benefit from a long-term global demand for IoT and data communication products, strong orderbook secured, and healthy balance sheet to support growth,” he writes.
As for Seet, he highlights that Aztech entered an FX contract to hedge against the US dollar weakening against the RMB. With the strengthening of the US dollar, it incurred a fair value loss on derivative financial instruments of $15.4 million.
The majority of these contracts will end in FY2022, but he thinks that there might be further hedging losses in 4QFY2022 if the US dollar continues to strengthen.
As such, Seet writes that he prefers Venture Corp in the Singapore tech space for its diversification and resilience.
Aztech’s management expects orders to remain robust and does not see any signs of a slowdown yet, despite its key customer guiding for a softer outlook.
He also notes Aztech’s order book, and says management still sees strong orders from its key customer going into FY2023.
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A bright spot is that Aztech’s margins are maintained if the FX loss is excluded. Seet says without the FX loss, the net margin would have been maintained at 13% instead of the reported 10.5%. “We expect net margin to normalise around 12-13%, excluding potential FX losses.”
Separately, Aztech’s utilisation remains “healthy” at 90% for the peak in 4QFY2022 and key customers still accounted for over 80% of 3QFY2022 revenue.
Furthermore, its management plans to start operating a new plant in Malaysia in FY2023 spanning 300,000 sq ft, three times the size of its current plant. This has not been factored into our forecasts, Seet says.
On Nov 7, shares of Aztech Global closed at 86 cents, with a FY2022 P/B ratio of 1.4 and dividend yield of 4.1%, according to Maybank.
