Aztech - UOB Kay Hian 2022-04-11: Expect Healthy Earnings Growth For 1Q22, Backed By Robust Orderbook

SGinvestors.io

AZTECH GLOBAL LTD. (SGX:8AZ)

Aztech - Expect Healthy Earnings Growth For 1Q22, Backed By Robust Orderbook

• We expect Aztech to report robust 1Q22 earnings of S$15m-17m, which indicates around 20% y-o-y growth. This is backed by Aztech’s robust orderbook of S$762m as at 22 Feb 22, which is 22% higher than its 2021 revenue.
• Aztech is also optimistic on its business prospects on the back of strong global demand for IOT devices. The recent disruption at its Dongguan plant should be minimal, and reopening of borders globally should help to ease the component shortage.

Expect Aztech to report strong 1Q22 results, as strong orders flow over.

• We expect Aztech Global (SGX:8AZ)’s to report robust 1Q22 earnings of S$15m-17m, which indicates around 20% y-o-y growth. This is backed by Aztech’s robust orderbook of S$762m as at 22 Feb 22, which is 22% higher than its 2021 revenue.
• To recap, Aztech has reported a steady q-o-q increase in earnings over the last three quarters (1Q21: S$13m, 2Q21: S$16m, 3Q21: S$18m, 4Q21: S$27m), proving its ability to overcome various challenges including component shortages, sporadic lockdowns and power rationing.

China's operations remain intact.

• Aztech has resumed full operations in its Dongguan plant on 21 Mar 22, after closing for six days for all staff members to undergo PCR testing. We understand that Aztech’s facilities are enjoying healthy utilisation rates, and the company is managing the shortage of components well on the back of:
  1. leveraging the strong brand name of customers,
  2. maintaining its good long-term relationship with suppliers, and
  3. modifying the product designs to switch reliance to parts that are more readily available.

Easing of border restrictions globally should help ease component shortage.

• In Feb 22, Hon Hai, the biggest assembler of iPhones, highlighted that a major improvement in part shortages is likely in the first quarter, with “overall supply constraints” set to ease in the second half of the year. In addition to this, the further easing of border restrictions globally should help to ease the component shortage, from easier access to labour and reduction of air freight rates.
• Malaysia's reopening of its borders with Singapore from 1 Apr 2022 is also positive news for Aztech's Johor plant.

Optimistic on 2022 business outlook.

• Aztech is optimistic on its 2022 business vaccination rate of 100%.

Committed to fortifying business resiliency.

• This year, Aztech is committed to fortifying its business resiliency through five key focuses to pivot growth and diversification across multi-sectors powered by the IoT trend. The 5 key focuses are:
  1. growing new IoT for operational and expansion needs.

Maintain BUY rating on Aztech

• We have kept our financial on the Singapore and Malaysia peers’ average.
• We continue to 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.
• Catalysts:
  • More order wins.
  • Better-than-expected cost management.
  • Earnings or dividend surprise.
• Aztech is also one of UOBKH's Singapore Stocks Alpha Picks for April 2022.

John Cheong UOB Kay Hian Research | Clement Ho UOB Kay Hian | https://research.uobkayhian.com/ 2022-04-11

SGX Stock Analyst Report BUY MAINTAIN BUY 1.550 SAME 1.550