Anticipating margin pressure
- We estimate 1H22F revenue/net profit grew 22.1%/15.7% yoy, driven by orders from its key customer.
- However, we lower our forecasts for FY22-24F to reflect margin pressure from higher costs and slowing economic growth.
- Reiterate Add with a lower TP due to our EPS cuts and as we switch to the Mar 2021 to Jun 2022 average forward P/E multiple of 9.1x.
IoT products remain a key revenue opportunity
In its 1Q22 business update on 18 Apr 22, Aztech updated that its order book at that time
stood at S$713.0m, and it said it expects it to be fulfilled in FY22F. We think that Internetenabled home security video cameras under the Blink brand by A mazon (AMZN US,
Unrated) w ere a key contributor to this order book. In terms of trends, the New York
Times (in its 7 Jul 22 article) ranked Blink Mini Compact Indoor Plug-In Smart Security
Camera as the second best-seller in the electronics segment on A mazon. Blink products
are also available in the UK, Germany, France, Italy and Spain. According to a 7 Jun 22
release by Global Market Insights Inc., the Wireless Home Security Camera Market is
expected to exceed US$25.0bn by 2030. In its 2021 annual report, Amazon commented
that its products, such as Blink security cameras, remain under development w ith more
changes in the pipeline aimed at improving customers’ lives.
Margin risk from inflationary pressures, slowing growth
In 1Q22, Aztech’s net profit margin fell 0.69% pt qoq/0.53% pt yoy to 10.86%. Given the
higher operating costs from Covid-19-related disruptions in China, inflationary cost
pressures and slow ing economic grow th, w e think Aztech’s net margins could slip as the
company is a key supplier for the Blink products, and w e believe that Aztech w ill take a
long-term view on its customer relationships. Hence, our FY22-24F revenue forecasts are
unchanged but w e reduce our gross profit margin assumptions by 0.30-0.80% pt, leading
to a 0.26-0.70% pt decline in our net profit margin assumptions over FY22-24F. Our EPS
forecasts for FY22-24F are reduced by 2.2-5.9%.
1H22F results due 25 Jul 22
Aztech w ill announce its 1H22F results after the market close on 25 Jul 22. Using its
1H21 performance as a guide (1H21 revenue/net profit w ere 40.0% of full-year numbers),
w e think 1H22F revenue/net profit could be S$304.0m/S$34.0m (+22.1%/+15.7% yoy).
Reiterate Add; TP lowered due to earnings cuts & lower multiple
Reiterate Add on earnings grow th prospects. TP is low ered to S$1.16 (previously S$1.59)
as w e now use the average forw ard P/E of 9.1x over Mar 2021 to Jun 2022 given the
uncertain economic outlook (previously sector average P/E of 12.0x) and 4.1% reduction
in FY23F EPS forecast. Dow nside risks to our call are component shortages and Covid19 related supply chain disruptions. Re-rating catalysts are potential new customer w ins
and earlier easing of component tightness.