Dongguan also in lockdown
? Aztech Global Ltd (Aztech) today announced a halt in production at its
Dongguan plant over 15-21 Mar 2022 as the city has gone into lockdown.
? Its Malaysia factory continues to operate as normal.
? We think its 1Q22F revenue will be affected and Aztech will need to catch up
on production once the Dongguan lockdown is lifted.
Dongguan locks down to combat Covid-19
? Dongguan has been put into a lockdown today (15 Mar 2022), with the date of the
lifting of lockdown tentatively set at 21 Mar 2022 (source: www.thestandard.com.hk).
? In Jun 2021, factories in Dongguan had faced similar production restrictions as the
authorities tried to limit the spread of the Delta variant of Covid-19.
Aztech’s 1Q22F will likely be affected
? Aztech today (15 Mar 2022) issued a public update that the Dongguan government
has announced a mass polymerase chain reaction (PCR) testing exercise for all
residents within the city to control the spread of Covid-19.
? To support the testing and prevention of further spread of Covid-19, Aztech’s
manufacturing plants have been ordered to stop work for the period of 15 to 21 Mar
2022.
? All production activities have ceased as of today and all employees are required to
report for PCR testing in line with the guidelines implemented by the Dongguan Covid19 task force.
? In its public announcement, Aztech said it will cooperate fully with the local
government’s directives and make all efforts to resume production activities as soon
as practicable.
? Meanwhile, Aztech’s plant in Malaysia remains fully operational.
? We think Aztech will need to catch up on production in 2Q22F. There are 90 days in
1Q22F and its Dongguan plant shutdown from 15 to 21 Mar translates into 7 days of
lost production for the China factory.
? Based on our estimates, the Dongguan plant could account for an estimated 80% of
Aztech’s total production floor space.
Reiterate Add
? We keep our Add call and TP of S$1.59, based on 12.0x (+1 s.d above its 1 year
forward P/E multiple) CY23F EPS forecast.
? Potential re-rating catalyst could be new customer wins.
? Downside risks to our call are component shortages and Covid-19-related supply
chain disruptions. If the Dongguan lockdown is prolonged, Aztech’s financial
performance for 1H22F will be negatively affected.