Aztech Global - Maybank Kim Eng 2021-04-22: Beneficiary Of IoT Tailwinds; Initiate Coverage With BUY.

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AZTECH GLOBAL LTD. (SGX:8AZ)

Aztech Global - Beneficiary Of IoT Tailwinds; Initiate Coverage With BUY.

Enabler for multiple IoT customers; robust pipeline

• Aztech Global (SGX:8AZ) is a key technology enabler and hardware manufacturer for consumer IoT products. We forecast FY20-23E EPS CAGR of 23%, driven by Customer A’s existing and new products, as well as from contributions from new customers in the IoT and Datacomm segment.
• We initiate BUY with target price of S$1.86, based on 18x core FY21E P/E, which we believe is justified vs CMS/ ODM peers trading at 13.4x/13.5x due to Aztech’s superior growth and margin prospects.

Riding the IoT wave

• Frost & Sullivan (F&S) expects the consumer IoT industry to enjoy a CAGR of 23.4% during 2019-23. We see Aztech as a proxy of this through
  1. the smart gains from Customer C (German smart-home technologies company) and
  2. new IoT & datacomm customers and products.

R&D and diversified footprint are key strengths

• We believe Aztech’s industry net customers early in product conceptualisation, and also enables rapid commercialisation of emerging trends. To cope with rising volumes, as well as customers’ requests to have production based outside China, Aztech intends to double its manufacturing capacity through a new plant outside of China (est. completion of initial stage: 1QFY22). This diversifies geographic risks from
  1. diseases,
  2. trade tensions, and
  3. disasters.

Valuation and risks

• On FY22E, Aztech is trading at 10x P/E, and our target price infers 12.9x. This is attractive relative to Valuetronics (SGX:BN2)/ Venture Corp (SGX:V03), which are trading at 12.2x/15.5x, for 3-year EPS CAGR of -9%/+10% respectively.
• See
  • Aztech Share Price;
  • Aztech Target Price;
  • Aztech Analyst Reports;
  • Aztech Dividend History;
  • Aztech Announcements;
  • Aztech Latest News.
• Key risks are
  • customer concentration (Customer A: ~59-65% of FY21-23E revenue) and
  • competition and commodisation in the mid-to-long term, and
  • Dongguan facility-related operational risks.
• Summary of analysis to be updated. Meanwhile, refer to the 41-page report attached below for complete analysis on Aztech Global (SGX:8AZ).

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-04-22

SGX Stock Analyst Report BUY INITIATE BUY 1.86 SAME 1.86