Room for order book to grow still
? We think Aztech could report 2Q23F revenue/net profit of S$175m/S$21m by 25 Jul 2023.
? With a new plant ready by end-2Q23F, Aztech is able to take on more orders. Customer qualifications and teething problems could be risk factors.
? Reiterate Add. 8.0-10.0% dividend yields sweeten EPS growth potential.
Aztech could report qoq revenue/net profit growth for 2Q23F
We think Aztech could announce its 1H23F results by 25 Jul or earlier, using last year as a guide. Over the past 3 years, 2Q has performed better than 1Q for both revenue and net profit and we expect this trend to continue in FY23F. We think 2Q23F revenue/net profit could be S$175m (+8.2% qoq, -26.1% yoy)/S$21m (+56.5% qoq, -27.7% yoy). 1H23F revenue/net profit could come to S$336.5m/S$34.4m.
Tech companies declare dividends on interim/final basis
Most of the tech companies under our coverage declare either interim and final dividend or only a final dividend. In FY22, Aztech declared dividends for 3Q22 and 4Q22. We think Aztech could consider aligning with the industry practice and switch to paying dividends on an interim and final basis. We note its FY22 dividend payout ratio was above the industry’s 34% average and was the second highest payout ratio after Venture Corp. Aztech is targeting a minimum dividend payout ratio of 30.0% for FY23F (per its 2022 annual report).
Order book still strong; new capacity for growth
As of 4 May 23, Aztech had an order book of S$661.9m that it was trying to deliver in FY23F. Aztech is also on track to commence operations (by 2Q23F) at a new 300,000 sq ft facility in Malaysia, Pasir Gudang (PG), for manufacturing IoT devices and data communication products. We think this facility could help Aztech secure greater value orders from customers and win new customers. The company has a competitive advantage in IoT devices, especially security camera-related products, in our view. Industry forecaster, Marketsandmarkets, on 9 May 23 highlighted that the video surveillance market generated US$48.7bn of sales in 2022 and it could post a CAGR of 9.4% (2022-2027) to reach US$76.4bn by 2027. We think there is room for Aztech to grow its IoT-enabled security camera business given its still small revenue size of US$0.59bn as at end-FY22.
We reiterate Add on Aztech for its EPS growth prospects. Our TP dips to S$1.01 from S$1.02 previously, now based on 8.3x (0.5 s.d. below its 3-year average forward P/E on our FY24F EPS; prev. 8.4x). We use 0.5 s.d. below its 3-year average as inflationary cost pressures could remain a challenge for the rest of FY23F and inefficiencies could add to costs as the PG plant is brought into operation. Key re-rating catalysts: potential new customer wins; more project wins from its main customer. Downside risks: component.