Aztech Global - UOB Kay Hian 2022-01-10: Business Remains Robust; Share Price Weakness Presents Buying Opportunity

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AZTECH GLOBAL LTD. (SGX:8AZ)

Aztech Global - Business Remains Robust; Share Price Weakness Presents Buying Opportunity

• We think Aztech Global's share price correction of > 30% since its IPO in Mar 21 is overdone. Aztech Global (SGX:8AZ) has been delivering solid results (9M21 earnings grew 55% y-o-y) and we expect 2021/22 earnings to grow 33%/22% y-o-y. We understand that Aztech’s operations remain intact and orderbook remains healthy.
• We reduced our 2022 earnings per share forecast for Aztech by 9% to reflect a more conservative view. Our target price fell 9%, pegged to peers’ average of 13.3x 2022F P/E. Maintain BUY.

Recent correction of Aztech's share price presents good buying opportunity.

• Aztech Global's share price has corrected by more than 30% since its IPO in Mar 21, where the majority of its correction took place in the last two months of 2021. We believe the correction is attributable to three factors:
  1. concerns over components shortages,
  2. fear of labour issues as one of Aztech’s industry peers, ATA IMS Bhd (AIB MK) suffered a massive share price correction after its largest customer stopped ordering from AIB MK due to labour infringement issues, and
  3. year-end portfolio rebalancing by institutional investors in paring down underperforming holdings.

Operations remain intact with healthy orderbook.

• We understand that Aztech’s facilities are currently enjoying S$636m as at 14 Oct 21 (1 Oct 21: S$569m), of which S$426m are scheduled for delivery in 2022 and S$210m for 4Q21.

Optimistic on 4Q21 performance and recent share buyback a vote of confidence.

• Based on its latest business update, Aztech is optimistic on Mr. Mun Hong Yew has also acquired approximately 0.5m shares in Aug and Sep 21.

China facilities continued to account for the bulk of the manufacturing activities during 9M21.

• In line with the higher demand and shipment of IoT devices and data-communication products, Aztech has increased its production headcount in Dongguan, China. Currently, 95% of the employees at Aztech’s China plant have received at least the first dose of the vaccine, with 93% of the employees having received the second dose as of 14 Oct 21 compared with 74% as at 30 Jul 21.
• Minimising impact of power usage regulations in China. In Dongguan, China, Aztech has put in place measures to comply with the regulations on power usage by the local authorities to minimise disruption to the production schedule. This includes increasing the production during night shifts and getting the support of the local government.

Earnings revision & Recommendation

• We kept our 2021 financial estimates for Aztech unchanged, but we trimmed 2022/23 earnings forecast for Aztech by 9%/8%, after reducing our 202220/23 revenue forecast by 5%/5%, to reflect a more conservative estimate and account for production disruption due to components shortages. We kept our like Aztech as the proxy to high-growth IoT products, where we believe orders are just starting to ramp up in 2021 and would sustain into 2022.
• See
  • Aztech's Share Price,
  • Aztech's Target Price,
  • Aztech's Analyst Reports,
  • Aztech's Dividend History,
  • Aztech's Announcements,
  • Aztech's Latest News.
• Share price catalysts:
  • More order wins.
  • Better-than-expected cost management.
  • Earnings or dividend surprise.

John Cheong UOB Kay Hian Research | Clement Ho UOB Kay Hian | https://research.uobkayhian.com/ 2022-01-10

SGX Stock Analyst Report BUY MAINTAIN BUY 1.55 DOWN 1.700