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Aztech Global - Maybank Research 2022-07-25: Strong Execution

AZTECH GLOBAL LTD. (SGX:8AZ) | SGinvestors.io AZTECH GLOBAL LTD. (SGX:8AZ)

Aztech Global - Strong Execution


Beat on solid momentum and margins

  • Aztech (SGX:8AZ)'s 1H22 PATMI of S$42.8m (+45.7% y-o-y) was ahead of our and street estimates, at ~50% of full year (1H typically accounts for ~40%). We raise FY22E earnings per share forecast for Aztech by 5% to reflect order book update and better than expected margins.
  • Maintain BUY call on Aztech as near term demand outlook appears more resilient than we anticipated, while components shortages are easing.
  • Key risk is if FY23 growth disappoints.



2Q22 summary

  • Aztech's 2Q22 revenue and net profit rose 77% and 79% y-o-y respectively, which we believe was largely driven by key customer Amazon.
  • Net margin rose 150bps q-o-q to 12.3%, which management attributed to improved productivity and favourable mix. Additionally, we think that the favourable move in the US$ vs CNY and MYR also played a factor.


Navigating near term challenges

  • Whilst easing, the components situation remains challenging. To overcome this, Aztech’s strategies are
    1. component redesign,
    2. searching for alternative suppliers, and
    3. giving suppliers longer lead times.
  • Aztech's order book stood at S$827m of which S$450m is expected to be delivered in 2H22 data (implies 20% y-o-y revenue growth).


Risks

  • A COVID-19 flare up at Aztech’s Dongguan site could impact manufacturing throughput. However, none has happened this year, and Aztech still does weekly PCR tests at its Dongguan factory.
  • Management is optimistic of long-term demand of IoT devices. We think slower than expected FY23 growth is a key risk, which may happen if a softer than expected economic backdrop results in an inventory correction at Amazon. We are more confident of nearer term prospects as Aztech observes that sell-through is still robust, and that the key customer’s warehouses have capacity to receive finished goods.
  • Our target price for Aztech rises to S$1.39 as we roll forward to 10x FY23E P/E.
  • See





Gene Lih Lai CFA Maybank Research | https://www.maybank-ke.com.sg/ 2022-07-25
SGX Stock Analyst Report BUY MAINTAIN BUY 1.39 UP 1.130



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