AZTECH GLOBAL LTD. (SGX:8AZ)
Aztech Global - Entering A Downcycle; Downgrade To HOLD
- Downgrade Aztech Global (SGX:8AZ) to HOLD with a lower target price of S$0.83, based on 7x FY22E P/E (from 10x) as the sector is entering into a downcycle. However, we expect Aztech’s earnings to remain resilient and our channel checks indicate that orders from its key customers remain strong.
- Rise in electricity cost has been reflected in new orders hence margins should be only marginally impacted.
- We prefer Venture Corp (SGX:V03) in the Singapore tech space for its diversification and resilience.
Orders from customers likely to remain strong
- As of 25 Jul 2022, Aztech’s order book was S$827m, of which the company expects S$450m will be delivered in 2H22. Our channel checks indicate orders from key customers remain strong and Aztech should be on track to reach our forecast numbers despite the poor global climate. However, there is a possibility orders might be delayed or reduced if things worsen and a global recession occurs.
Component shortage problem easing
- Aztech faced component shortages last year and during the first half of this year. But shortages are easing and coupled with the proactive steps management has taken to improve the situation, like redesigning its components to reduce reliance on parts that are harder to procure, searching for alternative suppliers and giving suppliers a longer lead time, we believe Aztech's 2H22E will be better than 1H22.
Risk orders are cut in the medium term
- Orders from Aztech's key customers are highly dependent on the sales of these products. With a recession anticipated, orders may be cut if the situation worsens and demand falls.
- To be conservative, we downgrade Aztech to HOLD with a lower target price of S$0.83 based on 7x P/E while factoring in the current risk climate.
- See
- We transfer coverage to Jarick Seet.
Jarick Seet
Maybank Research
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https://www.maybank-ke.com.sg/
2022-11-02
SGX Stock
Analyst Report
0.83
DOWN
1.390
