Order momentum remains strong
- 1H22 revenue/net profit was above our/Bloomberg consensus at 48%/50% of full-year forecasts. Historically, 1H formed 40% of full-year performance.
- Order book was S$827.0m as at 25 Jul 22, of which S$450.0m is expected to be fulfilled in FY22F.
- Reiterate Add with a higher TP of S$1.22.
1H22 above expectations
Aztech’s 1H22 revenue/net profit of S$364.6m/S$42.9m (+46.0% yoy/+45.7% yoy) was above our/Bloomberg consensus expectations (Aztech has a 40:60 seasonality). The strong growth was mainly driven by its IoT and data communication segment which delivered 52.6% yoy revenue growth to S$354.9m (97.3% of 1H22 revenue). NPM was flat yoy at 11.8% in 1H22. 2Q22 NPM was 12.3% versus 12.1% in 2Q21 and 10.8% in 1Q22. NPM benefited from a) strong demand for its IoT and data communication products which offer higher margins, 2) better operating cost controls and 3) unrealised foreign exchange gains offset by a higher tax rate (1H22: 15.0%; 1H21: 12.5%) as tax incentives for its China operations were fully utilised. Order book as at 25 Jul 22 was S$827.0m, of which S$450.0m is targeted to be delivered in FY22F. Aztech has secured the key components to fulfill this S$450.0m order. Aztech’s inventory position grew from S$62.4m as at endDec 21 to S$104.0m as at end-Jun 22 (76.1% of the inventory are raw materials) as the company stocked up on components to fulfill customer’s orders.
Management positive on long-term outlook
Our key takeaways post earnings call are 1) Customer A accounted for c.80% of 1H22 revenue versus c.65% of revenue in 1H21, 2) demand for Customer A’s smart security cameras continues to be strong, 3) component shortages situation has improved, 4) Covid19 situation (especially in China), supply chain-related risks and cost pressures will continue to be headwinds in 2H22F. Management is optimistic about the demand for IoT devices and data communication products, and will continue to focus on operational
excellence to manage the uncertain environment.
Reiterate Add
Reiterate Add on earnings growth prospects. Given the revenue outperformance driven by continued strong orders from its key customer, we revise our FY22-24F revenue forecasts upwards by 4.9%, leading to a 5.2-7.2% increase in our FY22-24F EPS forecasts. TP is raised to S$1.22 (previously S$1.16) based on an unchanged average forward P/E of 9.1x from Mar 2021 to Jun 2022. Downside risks to our call are component shortages and Covid-19 related supply chain disruptions. Re-rating catalysts are potential new customer wins and earlier easing of component shortage.
