Strong earnings momentum with attractive valuations
- Expecting a good set of FY21 results, net margins >10%
- Strong orderbook momentum; manageable supply chain disruption
- Strong earnings growth with attractive valuations; PEG of only 0.23x, vs. 0.7x for peers
- No change in earnings forecast; TP reduced to S$1.54 on lower peer average peg
Investment Thesis:
Expecting a good set of results, on a strong orderbook. We expect Aztech to report net earnings of S$72.3m for FY21, in line with the market consensus of S$72.4m. Its nine-month net earnings already accounted for 66% of our FY21F projections, vs. 55% in FY20, implying a flat y-o-y for 4Q21, as 4Q20 was exceptionally strong. Net margin for the full year is expected at 12%, after a strong 12.1% for nine-month FY21. Current valuation of 7.2x FY22F PE is a steal, with strong earnings momentum, translating to a PEG of only 0.23x, compared to 0.7x for its peers.
Strong orderbook riding on the fast-expanding IoT market with >90% revenue exposure. The outstanding orderbook of S$636m as at mid-October is an improvement from the S$604m as at 2Q21. We expect order momentum to remain strong, translating to a revenue growth of 25% in FY21F and another 37% in FY22F.
Valuation:
TP of S$1.54 pegged to peers’ average. Our new TP of S$1.54 (S$1.67 previously) is pegged to a lower FY22F peer average of 12x (vs. 13x previously) due to the de-rating of tech stocks globally, on FY22F earnings. BUY for its strong earnings momentum with attractive valuations. Aztech is trading at an attractive PEG of only 0.23x, vs. 0.7x for peers.
Where we differ:
We are more cautious as we expect the component shortage issue to likely be resolved only in 2H23, when the bulk of the new production capacity is in full operation.
Key Risks to Our View:
Customer concentration risk, operation risk for Dongguan land, and worsening of supply chain disruption.