UOBKH: Aztech Global – BUY TP $1.55

Expect Healthy Earnings Growth For 1Q22, Backed By Robust Orderbook

We expect Aztech to report robust 1Q22 earnings of S$15m-17m, which indicates
around 20% yoy growth. This is backed by Aztech’s robust orderbook of S$762m as at
22 Feb 22, which is 22% higher than its 2021 revenue. Aztech is also optimistic on its
business prospects on the back of strong global demand for IOT devices. The recent
disruption at its Dongguan plant should be minimal, and reopening of borders globally
should help to ease the component shortage. Maintain BUY. Target price: S$1.55.

WHAT’S NEW

• Expect strong 1Q22 results, as strong orders flow over. We expect Aztech Global’s
(Aztech) to report robust 1Q22 earnings of S$15m-17m, which indicates around 20% yoy
growth. This is backed by Aztech’s robust orderbook of S$762m as at 22 Feb 22, which is
22% higher than its 2021 revenue. To recap, Aztech has reported a steady qoq increase in
earnings over the last three quarters (1Q21: S$13m, 2Q21: S$16m, 3Q21: S$18m, 4Q21:
S$27m), proving its ability to overcome various challenges including component shortages,
sporadic lockdowns and power rationing.

• China’s operations remain intact. Aztech has resumed full operations in its Dongguan
plant on 21 Mar 22, after closing for six days for all staff members to undergo PCR testing.
We understand that Aztech’s facilities are enjoying healthy utilisation rates, and the
company is managing the shortage of components well on the back of: a) leveraging the
strong brand name of customers, b) maintaining its good long-term relationship with
suppliers, and c) modifying the product designs to switch reliance to parts that are more
readily available.

• Easing of border restrictions globally should help ease component shortage. In Feb
22, Hon Hai, the biggest assembler of iPhones, highlighted that a major improvement in part
shortages is likely in the first quarter, with “overall supply constraints” set to ease in the
second half of the year. In addition to this, the further easing of border restrictions globally
should help to ease the component shortage, from easier access to labour and reduction of
air freight rates. Malaysia’s reopening of its borders with Singapore from 1 Apr 2022 is also
positive news for Aztech’s Johor plant.

• Optimistic on 2022 business outlook. Aztech is optimistic on its 2022 business outlook as
it expects its operations to benefit from: a) healthy global demand for IOT and data
communication products, b) improving COVID-19 vaccination rates. To date, 98% of
Aztech’s employees in China have been fully vaccinated and 46% have received their third
dose. In Malaysia, its manufacturing facility is back to operating at 100% workforce after
achieving a plant-wide vaccination rate of 100%.

STOCK IMPACT

• Committed to fortifying business resiliency. This year, Aztech is committed to fortifying
its business resiliency through five key focuses to pivot growth and diversification across
multi-sectors powered by the IoT trend. The five key focuses are: a) growing new IoT
customers and products to enhance growth resiliency and widening its portfolio of high quality customers, b) deepening manufacturing, technology and IoT expertise to drive
innovation and growth in anticipation of new demands, c) excellent business execution
capability to optimise factors of production and output, d) integrating sustainability into its
business model and strategic formulation to future-proof business resiliency, and e) ensuring
disciplined balance sheet and cost management to ensure adequacy of its financial
resources for operational and expansion needs.

EARNINGS REVISION/RISK

• We have kept our financial estimates unchanged.

VALUATION/RECOMMENDATION

• Maintain BUY and target price of S$1.55, pegged to an unchanged 13.3x 2022F earnings,
which is still based on the Singapore and Malaysia peers’ average. We continue to like
Aztech as the proxy to high-growth IoT products, where we believe orders are just starting to
ramp up in 2021 and would sustain into 2022.