Analyst Jarrick Seet of Maybank Securities is keeping “buy” on technology company, Aztech Global 8AZ , at an improved target price of $1.14 from $1.08, while CGS International's William Tng is keeping his "add" call at an unchanged target price of $1.23, following the company's FY2023 ended Dec 31, 2023, results. Seet likes that stock due to its positive growth prospects compared to local peers, attractive yield and inexpensive valuations.
For the full-year, Aztech reported an improved 9.3% y-o-y revenue growth to $896.3 million and a profit after tax and minority interests (patmi) of $100 million, a healthy 48.9% growth y-o-y, beating Seet’s and consensus’ estimates.
“Going forward, 10% to 15% more orders are expected from its key customer and it should also enjoy more orders from existing and new customers,” notes the analyst.
Meanwhile, as reliance on the company’s key customer concentration has also reduced to 65% to 75% of revenue instead of more than 80%, Seet has raised his FY2024/FY2025 patmi forecasts by 11.7% and 16.7% respectively.
With the improved earnings, Aztech’s FY2023 dividend has also been raised 78% y-o-y to 8 cents from 4.5 cents, with the analyst adding that higher dividends can be expected in-line with performance.
“We expect dividends to potentially increase further as performance improves in FY2024 as its net cash position has also increased to $249.8 million from $217.8 million,” notes the analyst.
Looking forward, Seet writes: “We understand that its key customer is still seeing strong demand from the US and could potentially lift its orders 10%-15% which would benefit Aztech. Management is also seeing increased orders from existing and new customers.”
Currently, utilisation across the group’s factories is about 50% to 55% and the analyst expects utilisation to surge to 70% to 80% due to its pipeline of projects ahead.
However, the group’s current orderbook of$333.9 million is lower than expected due to shorter lead time, which has reduced to two to three months from nine to twelve months during the pandemic. The way Seet sees it, this will not be representative of its positive outlook. He believes that margins should either remain solid or improve due to higher operating leverage.
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Upside factors noted by Seet include a better-than-expected order momentum of existing products during the current internet of things (IoT) upcycle, new customer or allocation wins, and better-than-expected margins from operating leverage.
Conversely, downside risks include the commoditisation of consumer IoT products that lead to pricing erosion, a worsening of the components shortage situation, and lastly, inventory correction due to over-exuberance of the supply chain in anticipating end-consumer demand.
Meanwhile, Tng notes that although Aztech's net profit for the year met his exepectations, it was 2.0% below Bloomberg consensus', and the company's revenue did not meet his nor Bloomberg consensus expectations.
He writes: "The key surprise in FY2023 results was a stronger final dividend per share (DPS) of five cents, more than triple the final DPS of 1.5 cents for FY2022."
The analyst thinks that the company could maintain an eight cents DPS over FY2024 to FY2026, rewarding investors with prospective 9.20% dividend yield in an environment where macroeconomic growth outlook is weak.
"We marginally tweak our FY2024 to FY2025 earnings per share (EPS) forecasts by 0.001% to 0.003% as we fine-tune our revenue, operating expenses and gross profit margin assumptions," concludes Tng.
Key re-rating catalysts by him include potential new customer wins and winning more projects from Aztech's main customer, while downside risks include order cancellations due to an economic slowdown affecting demand, and volatile foreign exchange (forex) rate movements affecting its financials.
As at 1.20 pm, shares in Aztech Global are trading at three cents or 3.26% up at 95 cents.
