Analysts at CGS International, DBS Group Research and Maybank Securities have kept their “add” and “buy” calls at unchanged target prices of $1.23, $1.25 and $1.14 after Aztech Global 8AZ released its results for the 1QFY2024 ended March 31 on April 23.
For the quarter, net profit grew by 18.7% y-o-y to $15.9 million, while revenue fell 20.4% y-o-y to $128.6 million. The lower revenue was due to the rescheduling of customer orders as well as the negative impact from heavy snowstorms in China, where a large part of Aztech's production facility is based, explained the company in its April 23 statement.
To CGS analyst William Tng, Aztech’s quarterly revenue stood below his expectations, at 13.3% of his full-year forecast. The figure stood at 13.1% of the Bloomberg consensus forecast.
The company’s net profit also came below his expectations at 15.2% and 14.5% of his and the Bloomberg consensus’ full-year estimates.
The company’s net profit grew despite the revenue decline as it controlled its variable costs and the 1QFY2024 also benefited from a foreign exchange (forex) gain of $2.3 million, a write-back of bad debt provision of $1.2 million, and an estimated interest income of $2.5 million.
Meanwhile, Aztech’s pre-tax profit margin improved from 9.6% in 1QFY2023 to 14.7% in 1QFY2024 while its net profit margin improved from 13.4% in 1QFY2023 to 15.9% in 1QFY2024.
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Free cash flow for the quarter was $49.6 million, leading to net cash of $302 million as at end-March, while the book value per share improved from 45 cents at end-December 2023 to 47 cents as at end-March.
Due to challenging business conditions arising from inflationary cost pressures, foreign currency fluctuations, high interest rate environment, macroeconomic uncertainties and geopolitical tensions, Aztech is cautiously optimistic of the FY2024’s y-o-y growth in revenue and net profit based on the current visibility of potential orders shared by its customers.
As at April 23, the company’s order book stood at $456 million, up from $333.9 million as at February 22, with management targeting to complete the bulk of these orders in 2QFY2024.
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Tng notes that Aztech has also secured two new customers, a US company for a sound and light Internet-of-Things (IoT) product and a Japanese company for a visual IoT display product.
The company continues to see the global video surveillance market as one of potential, with management highlighting in its March report that Verified Market Research (VMR) has a US$5.4 billion ($7.43 billion) valuation in 2023, with a projected FY2024 to FY2030 compound annual growth rate (CAGR) of 12.5% to US$108.4 billion by 2030.
“We reiterate our ‘add’ call on Aztech as we think the company could maintain an 8 cents dividend per share (DPS) over FY2024 to FY2026, rewarding investors with a prospective 8.56% dividend yield in an environment where macroeconomic growth outlook is weak,” writes Tng.
His unchanged target price is still based on an FY2025 P/E of 8.7 times, its three-year average.
Aztech’s revenue for the 1QFY2024 revenue also came slightly below the DBS team’s expectations, at 13% of their forecast against 18% in the 1QFY2023. Aztech’s 1QFY2024 net profit stood at 14% of the team’s forecast, compared to 13% in 1QFY2023.
They write: “We expect revenue growth of 14% in FY2024 and 10% in FY2025. Net margins of above 10% level is much higher than the average low single-digit net margin of its peers in the downstream space.”
The team also notes that utilisation in the first quarter has been “typically low” at around 50%, but is “expected to surge” to 80% to 90% in 2QFY2024, as deferred orders are fulfilled in 2QFY2024 near to Aztech’s peak 2HFY2024 period.
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“Overall, contribution from the key customer still accounts for the bulk of about 85% of the total revenue,” adds the team at DBS.
They continue: “Current valuation of 6.4 times price-to-earnings (P/E) based on FY2024 earnings is attractive, at close to -1 standard deviation (s.d.) of its 3-year average P/E.”
Lastly, Maybank analyst Jarick Seet adds: "We expect utilisation of its factories to increase to 80% in 2QFY2024 from 50% in 1QFY2024 as the majority of the order book will be fulfilled by 3QFY2024 as well as the deferred orders from 1Q24."
"We remain optimistic Aztech will enjoy a better year in FY2024 and we remain positive on its prospects," concludes Seet
As at 2.15 pm, shares in Aztech are trading at 1.5 cents higher or 1.60% up at 95 cents.
