Results Analysis: Strong 1H22 with stable net margins while orderbook remains healthy
- 1H22 results slightly above ours and consensus expectations
- Inventory level remains high to fulfil orders in 2H22; supply chain disruptions a lesser concern in 2H22
- Net margins maintained at 11.8% despite higher tax rate, as the group was able to execute according to plans and also tight control on costs
- Strong orderbook of $827m, almost half is planned for completion in FY22
- Maintain BUY with TP of S$1.18; Aztech remains one of our top picks in the downstream segment
1H22 results slightly above ours and consensus expectations. Aztech reported 2Q22 net profit of $29.0m (+108% q-o-q, +79% y-o-y) on the back of the 77% y-o-y increase in revenue to $236.6m. 1H22 net profit of S$42.8m (+45.6% y-o-y) and revenue of $364.6m (+46% y-o-y) account for c.50% of our full year numbers, slightly above expectations. The 1H:2H split for 2021 was 40%:60%, implying the possibility of an earnings beat for FY22F. The strong performance in 1H22 was mainly due to the strong production volume and shipment of IoT devices and data-communication products, aided by the efficient coordination of components availability, execution and delivery of customer orders.
IoT and datacom products account for c.97% of the total revenue, and c.80% is from its major customer. Key products from this customer include security camera, doorbell and lights. The on-boarding of new customers is slower than expected, but the group continues to work on customer diversification. Utilization in 2Q22 has improved, with overall utilisation for 1H22 of about 60% to 70%.
Inventory level remains high to fulfil orders in 2H22. Inventories as at 30 June 2022 was S$103.95m, 67% higher than the level as at end 2021. About 75% are in the form of raw materials. The group had purchased raw materials and components in view of the overall tight supply globally and to meet the production requirements for 2H22. Hence, materials and component shortages would be a lesser concern in 2H22.
Stable net margins despite higher tax rate. 1H22 pretax margin of 13.8% was stronger than the 13.5% in 1H21 but net margin of 11.8% is comparable to 1H21, due to higher tax rate of 15% (12.5% in 1H21) on the back of the full utilisation of tax incentive from the group’s operations in China. Overall, margins were strong despite the inflationary pressure and the challenging supply chain environment, as the group was able to execute according to plans and also tight control on costs.
Strong orderbook; maintain BUY with TP of S$1.18. Orderbook as at 25 July 2022 is strong at S$827m, of which S$450m is planned for completion in FY22. Assuming these orders are completed in 2H22, there could be upside to our projection of S$753m revenue for FY22F. We are maintaining our earnings estimate, on the back of the inflationary pressure, risk of weakening demand ahead and possibly further lockdowns globally, especially in China, on the rising COVID cases. Aztech remains one of our top picks in the downstream segment. Maintain BUY with TP of S$1.18.
