AZTECH GLOBAL LTD. (SGX:8AZ)
Aztech Global - Demand Strength Curbed By Shortages
Curbed by shortages, but order book strong. BUY.
- Aztech (SGX:8AZ)’s 1H21 PATMI of S$29.4m (+125.9% y-o-y) fell short of our expectation, but was in line with street’s. 1H21 momentum could have been stronger if not for components shortages.
- On the back of robust 2H21 order book, we keep our forecasts and target price of S$1.86 for Aztech (18x FY21E P/E) unchanged.
- The demand outlook remains strong, and supply-side risks remain the key bottlenecks capping earnings growth potential. BUY.
Aztech's FY21E sales could beat, sans worsening bottlenecks
- Aztech's 1H21 revenue rose 93.4% y-o-y to S$249.7m on the back of a 128% surge in IoT and Datacom revenue.
- Aztech's key customer A accounted for around 65% of revenue in 1H21. Order book stood at S$604.4m as at 30-Jul (21-Apr: S$489m), of which S$454.4m are slated for delivery within 2H21. With this, Aztech is on track to deliver revenue S$704.1m, ahead of our estimate of S$679m, barring worsening impact from COVID-19 and supply chain constraints.
- Nevertheless, our forecasts are unchanged as we build in buffers for such risks materialising.
- Aztech's management targets to maintain 1H21 net margin of 11.8% (+1.7 ppt y-o-y) in 2H21.
Components shortages likely to persist…
- Aztech believes components shortages could persist into mid-to-end 2022. In particular, Datacom products face the most severe shortage, while Customer A has so far been able to help Aztech secure components. Inventory rose 72% h-o-h to S$92.4m, with the increase largely driven by Aztech’s efforts to secure components.
- Aztech has accelerated the phasing out of LED to make space for IoT products, which is more profitable and require less production space. With this, Aztech has enough capacity to accommodate customer requirements through 2022.
… and as such is the key swing factor
- Aztech may win more orders that can be delivered in FY21E, if there are enough inputs. Aztech has put in place contingencies and have ordered sufficient components for 2H21 deliveries.
- See
- Still, the key risk remains if supply-side risks compound.
- In Dongguan, 74%/26% of Aztech's employees are fully vaccinated/ have received one dose respectively.
- In Johor, Aztech has applied to MITI for a plant wide vaccination program (92% unvaccinated).
Gene Lih Lai CFA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-08-01
SGX Stock
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