Results Analysis: Strong 3Q23 with stable margins, above expectations
- A strong set of 3Q23 results, despite challenging environment; above expectations
- Stable margins despite one-off tax provision
- Raised FY23F/24F earnings by 16%/12%, mainly on higher margin assumption
- Maintain BUY with higher TP of S$1.25
A strong set of 3Q23 results, despite challenging environment. Aztech reported a 16.9% y-o-y (+24.9% q-o-q) increase in revenue to S$283.4m, mainly driven by sales of IoT devices and data communication products, which accounted for 98.2% of total sales. Its key customer accounts for about 85% of the total sales.
Stable margins despite one-off tax provision. Net profit surged 48.6% y-o-y (+4.7% q-o-q) to S$30.9m, on the back of the growth in revenue and greater economies of scale. The net profit margin of 10.9% remains healthy, despite a one-time deferred tax provision of S$5.5m relating to retained earnings from an overseas subsidiary, partly offset by a forex gain of about S$0.8m. Excluding these two items, the net margin would be 12.6%, comparable to the 13.0% in 2Q23.
3Q23/9-mth results above expectations. Overall, 3Q23 revenue/net profit account for 32%/35% of our FY23F forecasts. For the nine-month period, revenue gained 10.7% y-o-y while net profit was up 15.9%, accounting for 75% and 85% of our estimates for FY23F, respectively, above expectations. The net margin of 11% is a tad better than the 10.5% recorded during the corresponding nine-month period in 2022.
New plant to service existing customers and target new ones looking to expand out of China. The 300,000sqft Pasir Gudang facility commenced production in 3Q23 and is currently equipped with 8 SMT production lines, 2 Wave Soldering lines, 18 product assembly & testing lines, and 4 packaging lines.
Still healthy orderbook. The orderbook, secured as at 16 October 2023, was $322.7m. The majority of the orderbook secured is scheduled for completion in FY23. This is much lower than the S$820.5m secured as at 3 November last year, as the order lead time has normalised from 9-12 months during the pandemic to 2-3 months post-pandemic.
Raised FY23F/24F earnings by 16%/12%, mainly on higher margin assumption. We have revised up revenue by 3% each for FY23F and FY24F, while net earnings were raised by 12% to 16%, as we have pencilled in a higher net margin assumption of 11% for FY23F and FY24F from 9.7% and 10%, previously, respectively. Maintain BUY with TP of S$1.25 (previously: S$1.05), still pegged to 8.5x PE on FY24F earnings.