Revenue could cross S$1bn by FY25F
- Aztech reported 3Q23 net profit of S$30.9 (+48.6% yoy, +4.7% qoq), 5% below our S$32.5m forecast.
- 3Q23 net profit was reduced by a S$5.5m withholding tax. Excluding this, 3Q23 net profit would have been S$36.4m, 12% above our expectation.
- Reiterate Add, with unchanged S$1.23 TP, as FY23F orderbook remains strong and management remains optimistic of FY24F growth opportunities.
Record net profit in 3Q23
Aztech Global’s 3Q23 revenue of S$283.4m was 6% above our forecast of S$267.5m; 9M23 revenue formed 73%/75% of our/Bloomberg consensus’ full-year estimates. 3Q23 net profit was a record-high S$30.9m (since 1Q20), but 5% below our S$32.5m expectation, due to an unexpected S$5.5m withholding tax provision that Aztech made for its Dongguan subsidiary. Excluding this provision, 3Q23 net profit would have been S$36.4m, 12% above our expectation. 9M23 net profit formed 76%/82% of our/Bloomberg consensus’ full-year estimates. Net cash as at end Sep-23 was S$215.4m.
Management optimistic on FY24F prospects
Aztech updated that it has an orderbook of S$322.7m as at 16 Oct 2023 and the company will try to deliver between 80-90% of its orderbook in 4Q23F. Orders secured were for Internet-of-Things (IoT) solutions across varied market segments, including consumer & lifestyle, security, communication, automotive, healthtech, tracking and point of sales. Aztech also highlighted that the order lead time from customers has normalised from 9-12 months during the Covid-19 pandemic period to 2-3 months currently (which is the prepandemic norm). On prospects for FY24F, although management did not provide any guidance, based on its interactions with customers, management remains optimistic about opportunities to grow revenue next year. In our view, Aztech’s new 300,000-sq-ft Pasir Gudang facility, which commenced production in 3Q23, would be able to drive revenue growth in FY24-25F if the company is able to secure new customers/orders. With the resumption of trade exhibitions, we think Aztech could participate in the Consumer Electronics Show (CES) 2024 (a major consumer electronics trade show in the US) to showcase its product offerings.
Reiterate Add, given still positive outlook for FY24-25F
We reiterate our Add call on Aztech given its EPS growth prospects. Our TP is unchanged at S$1.23, still based on an FY25F P/E target of 8.7x, its 3-year average. We raise our FY23-24F revenue forecasts by 0.8-1.7%, given the better-than-expected 3Q23 revenue performance, leading to a 1.4-2.8% increase in our FY22-24F EPS forecasts. Key re-rating catalysts: potential new customer wins and more project wins from its main customer. Downside risks: order cancellations due to an economic slowdown affecting demand, and volatile foreign exchange rate movements affecting its financials.