Aztech Global - UOB Kay Hian 2022-04-19: 1Q22 Slight Miss Due To Temporary Lockdown; Outlook Remains Positive

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AZTECH GLOBAL LTD. (SGX:8AZ)

Aztech Global - 1Q22 Slight Miss Due To Temporary Lockdown; Outlook Remains Positive

• Aztech’s 1Q22 net profit of S$14m (+5% y-o-y) is slightly below our forecast due to the temporary suspension of operations in Dongguan for six days and inflationary cost pressure. IoT devices continued to be a key growth driver, which drove revenue growth of 10% y-o-y.
• Orderbook remains strong at S$713m as at 18 Apr 22 vs S$762 as at 22 Feb 22; this indicates a strong revenue growth for 2022. Also, Aztech is optimistic on its business prospects.

Aztech's 1Q21 earnings a slightmiss due totemporary suspensionof operations andinflationary cost pressure.

• Aztech Global (SGX:8AZ)’s 1Q22 net profit of S$14m (+5% y-o-y) is slightly below our forecast due to the temporary suspension of operations in the Dongguan plant for six days and inflationary cost pressure.
• Aztech's 1Q21 revenue grew 10% y-o-y, mainly driven by IoT devices and data-communication products which increased by 16% y-o-y to account for 97% of the group’s total revenue. The improvement in revenue was, however, partly negated by inflationary cost pressures that led to margin compression of around 1ppt y-o-y for EBITDA, pre-tax profit and net profit.
• Despite the slight earnings miss, we think that this is a commendable set of results amid the temporary lockdown and component shortages.
• Orderbook remains strong with mitigation measures for component tightness. Aztech's orderbook remains strong at S$713m as at 18 Apr 22 vs S$762m as at 22 Feb 22; this indicates a strong revenue growth for 2022.
• Also, Aztech is continuing with a three-pronged approach to manage component tightness:
  1. actively collaborate with customers on design changes to use alternative components,
  2. leveraging close working relations with suppliers, and
  3. expanding base of alternative suppliers.

Optimistic on 2022 business outlook.

• With several mitigation measures and growth focuses in place to fortify its business resiliency, Aztech expects its operations to benefit from:
  1. a strong global demand for IoT and data communication products,
  2. strong oderbook secured, and
  3. robust balance sheet to support growth.

Commitment to 2022 focuses.

• Aztech is committed to fortifying its business resiliency through 5 key focuses to pivot growth and diversification across multi-sectors powered by the IoT trend. The 5 key focuses are:
  1. target to achieve 10% of 2022 revenue from new customers and widen its portfolio of high-quality customers,
  2. deepen IoT expertise & capabilities in anticipation of new demands, includes the expansion of manufacturing capacity with a green facility outside of China,
  3. optimise factors of production and output through application of data analytics,
  4. integrate sustainability into its business model and strategic formulation to future-proof business resiliency, and
  5. maintain healthy gross debt/equity ratio of ≤ 20% and ensure adequacy of financial resources for operational and expansion needs.

Aztech Global - Earnings forecast and recommendation

• We have kept our financial 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/ 2022-04-19

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