Aztech Global - CGS-CIMB Research 2021-07-30: All Eyes Will Be On Execution In FY21


Aztech Global - All Eyes Will Be On Execution In FY21

  • Aztech registered strong order book growth of 24% from 1Q21 to reach S$604.4m as of end-Jul 21 and aims to maintain profit margin in 2H21F.
  • We estimate a bull-case scenario of S$704m (+45.4% y-o-y) for FY21F revenue if Aztech can obtain sufficient components given the current shortage.
  • Reiterate ADD with lower target price based on lower 15x FY22F P/E to reflect component shortage and COVID-19 risks.

Aztech's 1H21 results in line; registered strong order book growth

  • Aztech Global (SGX:8AZ)’s 1H21 revenue/PATMI of S$249.7m/S$29.4m (+93.4% y-o-y/+125.9% y-o-y) was in line, forming ~40% of our full-year forecast (Aztech has a 40:60 seasonality). The strong growth was mainly driven by its IoT and data communication segment which delivered 128.7% y-o-y revenue growth to S$232.6m.
  • Net profit margin expanded to 11.8% (+1.7% points y-o-y), helped by
    1. strong demand for its IoT and data communication products which commanded higher margins,
    2. better operating costs controls and
    3. tax incentives for its China operations.
  • Aztech's order book growth continued to gain strong traction, registering 24% growth from 1Q21 to S$604.4m as of end-Jul 21.

Demand still strong; execution will be key in 2H21F

  • Our key takeaways post Aztech's earnings call are
    1. Customer A accounted for ~65% ofpandemic and supply chain-related risks will continue to be headwinds in 2H21F and
    2. Aztech hopes to maintain profit margin in 2H21F.
  • Going into 2H21F, Aztech continues to see strong demand for its products but getting components remains a challenge. In our view, Aztech’s 2H21F performance hinges on its ability to secure enough components to fulfill customers’ orders.

Our bull-case scenario sees Aztech's FY21F revenue at S$704m

  • Our checks on 30 Jul 21 found order book, Aztech expects S$454.4m to be completed in FY21F. With 1H21 revenue of S$249.7m, FY21F revenue upside could be ~S$704m (+45.4% y-o-y) if Aztech can secure enough components to fulfill orders.

Reiterate ADD on Aztech, with a lower target price

William TNG CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-30
SGX Stock Analyst Report ADD MAINTAIN ADD 1.82 DOWN 1.910