Aztech Global - CGS-CIMB Research 2021-10-15: Commendable Execution In 3Q21

AZTECH GLOBAL LTD. (SGX:8AZ)

Aztech Global - Commendable Execution In 3Q21

Constrained by component shortages, Aztech's 3Q21 revenue was below expectations at 22.5%/21.7% of our/Bloomberg consensus full-year forecast.
Aztech's 3Q21 core net profit was slightly below expectations at 23.8% of our/ Bloomberg consensus full-year forecast.
Reiterate ADD. Our target price for Aztech is lowered as we adjust our FY21F-23F revenue expectations due to the ongoing component shortages.

Aztech (SGX:8AZ)’s 3Q21 revenue grew 6% y-o-y to S$141.1m while net profit grew 2.9% y-o-y to S$18.0m. Net profit margin fell to 12.8% in 3Q21 vs 13.1% in 3Q20.
For 9M21, revenue grew 49% y-o-y to S$390.7m while net profit grew 55.4% y-o-y to S$47.4m. 9M21 net profit margin was 12.1% vs 11.6% in 9M20.
On a sequential basis, Aztech's net profit margin improved to 12.8% in 3Q21 from 12.1% in 2Q21 and 11.4% in 1Q21. The improvement in net profit margin was due higher productivity, continuing exit from lower-margin products and tax incentives for its China operations. Its Internet of Things (IoT) and data communication products segment revenue surged 70% y-o-y to S$368.1m in 9M21 and was the key revenue contributor to 9M21 revenue at 94.2%.

Component availability remains the key downside with its full workforce in Malaysia by the third week of Oct.

Management believes that the global share forecasts for FY21F-23F are thus reduced by 0.9-3.9%.
We reiterate our ADD call on Aztech based on unchanged P/E of 15x 2022F EPS (peer sector average).
See
Share buybacks (mandate approved by shareholders on 13 2021) could help lend support to Aztech's share price.
Downside risks to our call are component shortages and COVID-19 related supply chain disruption.
New customer wins and stronger earnings could re-rate the stock.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-15

SGX Stock Analyst Report ADD MAINTAIN ADD 1.75 DOWN 1.820