Remarkable results with strong orderbook
- FY21 results inline; net profit surged 33.5% y-o-y despite supply chain challenges
- Weaker GP margin, but net margin remains strong at 11.9% for FY21
- Strong orderbook; expect 10% revenue in FY22 from new customers
- Maintain BUY, TP lowered to S$1.48 on 4% cut in earnings on lower margin assumptions
Investment Thesis:
Remarkable results with above-industry average net margins of more than 10%. Amidst a tough operating environment posed by the global logistical and component challenges, Aztech reported a remarkable set of results with a 33.5% y-o-y jump in net profit. Net profit margin remains strong at 11.9%. We continue to project an above industry average net margin of 11.5% for FY22F and 11.6% for FY23F, driven by the strong growth in the IoT market and the group’s continuing efforts to improve productivity and efficiency. This should lead to a robust earnings growth of 28%/20% in FY22F/FY23F
Strong orderbook riding on the fast-expanding IoT market with >90% revenue exposure. The outstanding orderbook as of 22 February 2022 stood at S$762m, an improvement from S$496m as at 31 December 2021. As we are still in the early part of the year, we expect the group to secure more orders for fulfilment in 2022. We expect order momentum to remain strong, translating to a revenue growth of 33% in FY22F and another 19% in FY23F.
Valuation:
TP of S$1.48 pegged to peers’ average valuations. We lower TP to S$1.48 (previously S$1.54) on the back of a 4% cut in earnings (tweak in gross margins), pegged to FY22F peer average of 12x on FY22F earnings. BUY for its strong earnings momentum with attractive valuations. Aztech is trading at an attractive PEG of only 0.23x, vs. 0.8x for peers.
Where we differ:
We are optimistic that the group can continue to ride on the fast-expanding IoT market and to generate above industry net margin of >10%.
Key Risks to Our View:
Customer concentration risk and operation risk for Dongguan land.