Analysts at UOB Kay Hian (UOBKH) and DBS Group Research have raised their target prices for Aztech Global 8AZ , following the firm’s record-high earnings for the 3QFY2023 ended Sept 30 at $30.9 million.
John Cheong and Heidi Mo of UOBKH’s new target price for Aztech is now at $1.11 from $1 previously, while Ling Lee Keng of DBS has a new target price of $1.25 from $1.05 previously.
The UOBKH analysts’ new target price is pegged to an 8.2x FY2024 earnings per share, based on Aztech’s long-term mean P/E. Meanwhile, Ling’s new target price is still pegged to 8.5x, slightly below the average since listing in 2021, on Aztech’s FY2024 earnings.
In their report dated Oct 17, Cheong and Mo say that Aztech’s 3QFY2023 net profit exceeded their forecast, while the firm's 9MFY2023 net profit of $73.8 million, which is a 15.9% y-o-y increase, accounts for 82% of their full-year estimates.
“The strong results came from a 10.7% y-o-y growth in revenue, driven by sales of internet of things (IoT) devices and data-communication products. Aztech also enjoyed greater economies of scale, higher interest income and lower net fair value loss on its foreign exchange contracts,” the analysts say.
They note that despite higher income tax expenses incurred due to a one-time deferred tax provision worth $5.5 million from an overseas subsidiary’s retained earnings, Aztech recorded an improvement in net margin to 10.9%, a 2.3 percentage point (ppts) increase y-o-y.
In addition, the analysts say that Aztech’s orderbook remains resilient with a normalised lead time. Aztech has secured $322.7 million orders as at Oct 16, as compared to $595 million as at July 21. Most are scheduled for completion in 2023 across its facilities in Dongguan China, and Johor, Malaysia, with order lead time normalising from 9-12 months to 2-3 months.
Likewise, Ling from DBS notes Aztech’s “strong set of 3QFY2023 results, despite the challenging environment”.
“We expect the order momentum to remain decent, translating to revenue growth of 14% in FY2024 and 10% in FY2025,” the analyst says. “Going forward, we expect net margins to remain above the 10% level, much higher than the average low single-digit net margin of its peers in the downstream space.”
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However, as the external environment remains volatile and fraught with geopolitical tensions, Cheng and Mo say Aztech remains cautiously optimistic about its nearterm business prospects.
“The operating environment remains challenging with higher interest rates, inflationary cost pressures and foreign currency fluctuations. Aztech continues to strengthen its balance sheet, with net cash of $215.4 million as at end-Sept (32.6% of market capitalisation), and stringent cost and foreign exchange management,” they add.
Cheng and Mo note two factors that will contribute to Aztech’s stock impact. These include the acquisition of the 300,000 square foot (sf) Pasir Gudang facility, which was completed in April, with the commencement of production in 3Q2023.
They say that this, alongside other Malaysian and Chinese facilities, meet Aztech’s total production requirements. The additional capacity at Pasir Gudang has lifted Aztech’s total
manufacturing built-up area to 846,000 sf for growth and for production diversification to meet
the needs of customers, they add.
The other factor is Aztech’s launch of a new vision technology product line under its Kyla brand on Aug 28. The two new products are power-over-Ethernet internet protocol (IP) CCTV, which targets Singapore’s pre-school educational segment, and digital microscope, which is slated to launch overseas by end 2023.
As the video surveillance market is projected to reach US$157.1 billion ($215.16 billion) by 2030 (seven-year compound annual growth rate or CAGR of 12.9%), Aztech’s new product line is therefore likely to contribute to earnings growth moving forward, according to the analysts.
As such, Cheng and Mo from UOBKH have raised Aztech’s 2023/2024/2025 revenue forecasts by 3%/5%/5% respectively, on the back of its better-than-expected results and steady orderbook. Accordingly, their net profit estimates have increased by 5%/7%/7% for the same period.
“We continue to like Aztech as it is a proxy to high-growth IoT products, for which we believe orders will continue to grow in FY2024,” they write.
As at 9.56am, shares in Aztech Global are trading 0.5 cents lower, or 0.57% down at 88 cents.
