UOB Kay Hian’s John Cheong has maintained his “buy” call on Aztech Global with an unchanged target price of $1.55, as he expects the company to report “robust earnings” of about $15-$17 million for its 1QFY2022 ended March 31.
The $15-$17 million figure would represent a 20% y-o-y growth. According to Cheong, this forecast is backed by Aztech’s robust orderbook of $762 million as of Feb 22, which is 22% higher than its 2021 revenue.
In his report dated April 11, Cheong points out that Aztech has reported a steady q-o-q increase in earnings over the last three quarters, from $13 million in 1QFY2022 to $27 million in 4QFY2022, “proving its ability to overcome various challenges including component shortages, sporadic lockdowns and power rationing.”
The company’s China's operations remain intact, and Aztech has resumed full operations in its Dongguan plant on March 21, after closing for six days for all staff members to undergo PCR testing.
Cheong says that he understands that Aztech’s facilities are enjoying healthy utilisation rates, and the company is managing the shortage of components well.
It has leveraged the strong brand name of customers, and maintained its good long-term relationship with suppliers, while modifying product designs to switch reliance to parts that are more readily available.
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Furthermore, Cheong thinks that the easing of border restrictions globally should help ease component shortages, saying there should be easier access to labour and a reduction of air freight rates. Malaysia's reopening of its borders with Singapore from April 1 is also positive news for Aztech's Johor plant.
Moving forward, the analyst says Aztech is “positive” on its business prospects on the back of strong global demand for IoT devices and improving Covid-19 vaccination rates for its workers.
To date, 98% of Aztech’s employees in China have been fully vaccinated and 46% have received their third dose. In Malaysia, its manufacturing facility is back to operating at 100% workforce after achieving a plant-wide vaccination rate of 100%.
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He continues to like Aztech as the proxy for high-growth IoT products, saying “we believe orders are just starting to ramp up in 2021 and would sustain into 2022.”
Catalysts to Aztech’s share price include more order wins, better-than-expected cost management, as well as an upside surprise in earnings or dividends, says Cheong.
Shares of Aztech closed at 93 cents on April 12, with a FY2022 price to book ratio of 2.1 and dividend yield of 5.6%.
