Analysts at CGS-CIMB Research and Maybank Securities are maintaining their “add” and “buy” calls on Aztech Global 8AZ upon visiting the company’s plant as well as research and development (R&D) centre in Dongguan, China last week.
In his report, CGS-CIMB analyst William Tng notes that the third quarter tends to be the peak production period for tech-related manufacturing, in preparation for the fourth quarter holiday sales. The production activities observed by Tng suggest that Aztech is likely to see a stronger 3QFY2023 financial performance versus 2QFY2023, in line with the trend.
To this end, Maybank analyst Jarick Seet points out that Aztech is one of the few factories in Dongguan that is still busy with customer orders. “Many factories are suffering or have closed down following China’s re-opening as customers are shifting production out of China. However, Aztech’s key customer has been doing well and it has been rewarding Aztech with more orders,” says Seet.
The Dongguan factory has been in operation since 2005. Tng highlights that Aztech has a stable team running the plant's operation, which helps in its operating efficiency. “This, in addition to a cost-conscious culture, is, in our view, one of the contributors to Aztech’s pretax profit margin,” says Tng.
The other factor could be the vertical integration capabilities offered in the factory. The Dongguan plant works as a one-stop shop with capabilities ranging from plastic injection moulding, printed circuit board (PCB) assembly, product testing and PCB burn-in testing to quality control, Tng clarifies.
Meanwhile, Aztech’s R&D centre in Shenzhen has developed many new products related to security cameras, Internet of Things, mattresses, satellite gateways and electric vehicle chargers under its own brand as well as its customers’. Maybank believes this is one of the main reasons why Aztech can enjoy higher margins compared to its competitors.
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“We also understand Aztech designed and created certain products from scratch and white labelled them with customers’ brand and sold via their customers. Management sees huge potential in internet protocol cameras and two new vision technology products, namely Power-Over-Ethernet Internet Protocol CCTV and Digital Microscope, which will be expanded to international markets by the end of 2023,” he adds.
Aztech has recently expanded its production into Malaysia. The new plant in Pasir Gudang, Johor Bahru is assisting in some of the manufacturing for its key customer. The plant is not expected to have too many teething problems, Tng notes.
With an attractive yield of 8.5% trading at just 6.4x FY2023 P/E, Maybank thinks Aztech is undervalued for its capabilities and resiliency. That said, Seet is keeping his target price at 93 cents.
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Tng is also maintaining his target price at $1.11, adding that inflationary cost pressures could still pose a challenge.
As at 3.04pm, shares in Aztech are trading 1.5 cents lower or 1.89% down at 77.5 cents.
