Aztech Global - UOB Kay Hian 2022-07-26: 2Q22 Earnings Beat Due To Higher Productivity; Orderbook Remains Healthy

SGinvestors.io

AZTECH GLOBAL LTD. (SGX:8AZ)

Aztech Global - 2Q22 Earnings Beat Due To Higher Productivity; Orderbook Remains Healthy

• Aztech’s 2Q22 net profit of S$29m (+79% y-o-y / +109% q-o-q) is above our forecast due to stronger production volume in the absence of production disruption. IoT devices continued to be a key growth driver, which drove revenue growth of 77% y-o-y.
• Aztech's orderbook grew 16% to S$827m as at 25 Jul 22 vs S$713m as at 18 Apr 22; S$450m is planned for completion in 2H22, indicating a strong 2H22. Also, Aztech is optimistic on its outlook.

Aztech's 2Q22 earnings beat due to stronger productivity in the absence of production disruption.

• Aztech Global (SGX:8AZ)’s 2Q22 net profit of S$29m (+79% y-o-y/+109% q-o-q) is above our forecast of S$18m due to productivity and operational efficiency gains arising from fulfilment of critical mass orders at its manufacturing facilities in Dongguan, China and Johor, Malaysia.
• The strong results were also aided by efficient coordination of components availability, execution and delivery of customer orders. To recap, manufacturing operations in Dongguan were suspended from 15-20 Mar 22 to support the testing for COVID-19 and prevention of the further spread of COVID-19 infection.

Orderbook remains strong with three-pronged component management approach for component tightness.

• Aztech's orderbook remains strong as it grew 16% to S$827m as at 25 Jul 22 vs S$713m as at 18 Apr 22; S$450m is planned for completion in 2H22, indicating a strong 2H22. 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 long-term global demand for IoT and data communication products,
  2. strong orderbook secured, and
  3. robust balance sheet to support growth.

Commitment to 2022 focus areas.

• Aztech is committed to fortifying its business resiliency through five key focuses to pivot growth and diversification across multiple sectors powered by the IoT trend. The 5 key focus areas are:
  1. target to achieve 10% of 2022 revenue from new customers and widen its portfolio of high-quality customers,
  2. deepen IoT expertise and capabilities in anticipation of new demand, including 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 - Earnings forecast revision & recommendation.

• We have kept our financial estimates for Aztech unchanged. Maintain to like Aztech as the proxy to high-growth IoT products, where we believe orders are starting to ramp up in 2022 and would sustain into 2023.
• 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.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-07-26

SGX Stock Analyst Report BUY MAINTAIN BUY 1.46 DOWN 1.550