- RE-ITERATE BUY Entry – 0.93 Target – 1.00 Stop Loss – 0.90
- Aztech provides Original Equipment Manufacturer (OEM), Original Design Manufacturer (ODM), Joint Development Manufacturing (JDM) or Contract Manufacturing Services (CMS) services to brand owners sold under the label of the respective customers. The company distributes a wide range of IoT devices and Data-communication products sold under its proprietary “Aztech” and “Kyla” brands through channel partners and e-commerce platforms. In addition, the company manufactures a wide range of LED lighting products used in residential, commercial and industrial applications.
- Missed expectations. On 18 April, Aztech posted 1Q results which missed expectations, making up only 15% of consensus full-year forecast. While the company posted a 10% YoY revenue increase to S$128mn and a 5% YoY increase in net profit to S$14mn, management said that inflationary cost pressure negated improvements in revenue and led to margin compression of between 60 to 110 bps for its net profit. Furthermore, Aztech’s Dongguan factory was closed in March due to the Covid-19 restrictions.
- Strong outlook. Aztech’s strong order book of S$677mn as at end March 2022 puts it in a favourable position when Covid-19 restrictions start to loosen up in China. The company remains a locally-listed proxy for the high-growth Internet of Things (IoT) trend.
- Positive consensus estimates and attractive valuations. There are currently 4 BUY recommendations and a 12m average TP of S$1.40, implying a 47% return from the last close price. Aztech trades at attractive valuations of 8x and 7x FY2022 and FY2023F, and offers a higher-than-average industry dividend yield of 4.4% and 5.2% in FY2022 and FY2023. Net cash of S$187mn as at end Dec-2022 makes up 25% of market cap.
Aztech Global (AZTECH SP) (Source: Bloomberg)