On track for a stronger 2H23F
- 1H23 net profit was above our/Bloomberg consensus at 50.%/48.7% of fullyear forecasts. Historically, 1H has formed 40% of full-year performance.
- As at 21 Jul 23, order book was S$594.5m. Aztech expects to complete a significant portion (no guidance provided) of this order book in 2H23F.
- Reiterate Add with a higher TP of S$1.11 as FY24F revenue growth may be higher than our previous expectation, leading to higher net profit.
2Q23/1H23 results above expectations
Aztech’s 2Q23/1H23 revenue was 29.8%/15.5% above our forecasts. 2Q23/1H23 net profit was 40.7%/24.9% above our forecasts. 1H23 revenue formed 48.7%/45.1% of our/Bloomberg consensus forecasts, while 1H23 net profit formed 50.0%/48.7% of our/Bloomberg consensus forecasts. 1H23 revenue/net profit of S$388.6m/S$42.9m (+6.6% yoy/+0.2% yoy) was above our/Bloomberg consensus expectations. 1H23 revenue growth was driven by its IoT and data communication segment which grew by 7.3% yoy to S$380.7m (98% of 1H23 revenue). 1H23 net profit margin fell 0.80% pts yoy to 11.0% from 11.8% in 1H22 due to a) higher employee benefits expense as a result of higher headcount to support the increase in business activities and b) higher other operating expenses due to the purchase of tools and equipment for its new Pasir Gudang (PG) plant in 1H23. An interim DPS of 3.0 Scts was also declared.
Stronger 2H23F likely
We see a better hoh financial performance in 2H23F as a) management believes the typical 1H/2H revenue split of 40%/60% is likely to recur in FY23F and b) as at 21 Jul 2023, order book for completion in 2H23F is S$594.5m. Aztech has also been able to defend its margin, with 1H23 pre-tax profit margin at 13.1% versus 13.8%/6.6% in 1H22/2H22. 2Q23 pre-tax profit margin was 15.6% versus 14.6% in 2Q22. Taking reference from its S$594.5m order book, our FY23F revenue forecast is raised by 15.8% as we assume 90% of the order book will be completed in 2H23F. According to management, Aztech continues to work on customers’ planned product pipelines for FY24F and is trying to secure new customers, hence we increase our FY24-25F revenue forecast by 11.8-15.9%. We raise FY23-25F EPS forecasts by 2.0-13.5%, driven by our higher revenue assumption.
Reiterate Add with a higher S$1.11 TP
We reiterate Add on Aztech due to its EPS growth prospects. Our TP (still based on 8.3x, 0.5 s.d. below its 3-year average forward P/E on our FY24F EPS forecast) rises to S$1.11 given the 9.5% increase in our FY24F EPS forecast. We use 0.5 s.d. below its 3- year average as inflationary cost pressures could still pose a challenge and inefficiencies could add to costs as the PG plant starts operations. Key potential re-rating catalysts: potential new customer wins and more project wins from its main customer. Downside risks: component shortages and order cancellations due to an economic slowdown affecting demand and volatile foreign exchange rate movements affecting its financials.
