Analysts are mixed on Aztech Global 8AZ following the announcement of its 1QFY2023 ended March results, which missed expectations due to inflationary pressures and foreign exchange loss.
For its 1QFY2023, Aztech recorded a net profit of $13.4 million. Excluding the impact from a $3.1 million foreign exchange loss, its net profit would have been $16.5 million.
Aztech’s 1QFY2023 net profit formed 15.6% and 11% of CGS-CIMB Research and DBS Group Research’s full-year forecasts. The foreign exchange loss coupled with inflationary cost pressures had also resulted in gross profit margin falling 4.8% percentage points y-o-y to 22.6% in 1QFY2023 from 27.4% in 1QFY2022.
Despite this, DBS analyst Ling Lee Keng has maintained her “buy” call on Aztech with a lower target price of $1.05 from $1.15 previously. This is pegged to 8.5x P/E, about -0.5 standard deviation of its average P/E since listing on blended FY2023/FY2024 earnings.
She says that the current valuation at a 7.3x FY2023 P/E is still attractive, below the average P/E of about 10x. “Key catalysts would include a higher value orderbook, faster-than-expected ramp up of the new plant in Malaysia and further improvements in cost management, leading to higher margins,” adds Ling.
Maybank Securities' Jarick Seet has also kept his "buy" call and lowered his target price to 93 cents from $1.02 previously, believing that the margin pressure would continue. As such, the analyst has lowered his FY2023/FY2024 forecasts by 20% and 16.8% respectively.
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Meanwhile, CGS-CIMB analysts Willam Tng and Izabella Tan have also kept their “add” call for Aztech, lifting their target price to $1.02 from 91 cents previously. This is on the back of projected dividend yields of 7%-9% over FY2023-FY2025, aside from EPS growth prospects.
The analysts now value Aztech at 8.4x, 0.5 standard deviation below its two year average forward P/E multiple on CGS-CIMB’s FY2023 EPS forecast. “We continue to use 0.5 standard deviation below its two year average as inflationary cost pressures could remain a challenge for the rest of FY2023 and inefficiencies could add to costs as the Pasir Gudang plant is brought into operation,” the analysts add.
Aztech’s new Pasir Gudang plant in Malaysia’s Johor state — which is targeted to be operational by June to July 2023 — will expand its manufacturing footprint to 846,000 sq ft. As at May 4, Aztech’s order book stood at $661.9 million, with the bulk scheduled for completion in FY2023.
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This pales in comparison to the orders secured as at February 17 at $718.6 million. Ling says this could be partly due to the shorter lead time for orders on the back of the supply chain recovery. Additionally, the demand for consumer electronics which remained weak could also affect the orderbook, though DBS expects a gradual recovery from 2H2023 onwards.
“We can look forward to more contracts being booked for FY2023, as the order lead time is becoming shorter with supply chain disruptions easing. We have pencilled in a revenue growth of 9% in FY2023 and another 14% in FY2024 in our forecasts,” Ling says.
Maybank's Seet adds that Aztech is set to benefit from the trend of diversifying manufacturing away from China. He points out that the utilisation rates at Aztech's Dongguan factory in China and Malaysia is close to 100%, signalling positive quarters ahead.
"Despite margin pressure, we believe earnings will still rebound considerably in FY2023 due to strong orders from its key customer," he says.
As at 2.56pm, shares in Aztech are trading 3 cents lower or 3.65% down at 79 cents.
