2Q23: Earnings Slightly Above Expectations; Cautiously Optimistic Outlook
Aztech’s 2Q23 earnings after excluding a S$7.9m forex impact was S$21.6m (-20% yoy/+31% qoq) and this is slightly above our forecast, with 1H23 forming 42% of our full-year estimate. IoT devices continued to be a key growth driver, driving revenue growth of 7.3% yoy in 1H23. Orderbook remains healthy at S$595m as of 21 Jul 23, of which most are planned for completion in 2023. The outlook for 2023 remains cautiously optimistic. Maintain BUY and target price of S$1.00.
RESULTS
• 2Q23 earnings slightly above expectations; respectable core earnings growth of 31% qoq. Aztech Global’s (Aztech) 2Q23 net profit after adjusting for S$7.9m of forex gain was S$21.6m (-20% yoy/+31% qoq); this is above our forecast of S$20m, with 1H23 forming 42% of our full-year estimate. 1H typically forms around 40% of full-year earnings. The positive forex impact was mainly due to stronger USD vs local currencies at operating locations including China and Malaysia. IoT devices and data-communication products continued to be the key growth drivers, driving revenue growth of 7.3% yoy in 1H23. Excluding the forex impact, Aztech’s performance benefitted from revenue growth, efficiency gains and higher interest income, offset by higher employee benefit expense.
• Orderbook remains strong; declared 3.0 S cents interim dividend. Aztech secured a total of $595m orders as at 21 Jul 23 (vs S$662m as of 4 May 23). Majority of these are scheduled for completion in 2023 across Aztech’s manufacturing facilities in Dongguan, China and Johor, Malaysia. The company also declared a dividend of 3.0 S cents per share. This amounts to S$23.2m or about 54% payout ratio (vs last year’s 52%).
• Cautiously optimistic on its 2023 business outlook. Aztech expects the challenging operating environment to persist in 2H23 with ongoing uncertainties at the economic and geopolitical fronts. Amid the high interest rates, volatile foreign exchange and inflationary cost environment, Aztech will focus on fortifying its strong balance sheet with prudent working capital, discipline cost and foreign exchange management, while staying agile to capitalise on opportunities in the IoT industry.
STOCK IMPACT
• Commenced pilot plant trial production at new Pasir Gudang Facility. After the acquisition of the 300,000sf Pasir Gudang Facility was completed in Apr 23, Aztech has commenced pilot plant trials production. It is committed to get the facility ready to meet production requirements and schedule of customers. The additional capacity at Pasir Gudang has lifted Aztech’s total manufacturing built-up area to 846,000sf for growth and production diversification needs of customers.
EARNINGS REVISION/RISK
• We maintain our earnings forecast.
VALUATION/RECOMMENDATION
• Maintain BUY and target price of S$1.00, pegged to an unchanged 8.6x 2023F EPS. This is based on Aztech’s long-term mean PE. We continue to like Aztech as it is a proxy to high growth IoT products, for which we believe orders will continue to grow in 2023.
SHARE PRICE CATALYST
• Steady order wins.
• Better-than-expected forex gain and cost management.
• Interim dividend surprise.
