SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

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Equity Bottom-Up

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
<h2>Aztech Global Ltd</h2>
<h3>Blinking growth</h3>
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<li>Johor plant’s area expansion by 89% underway by 1H21F to support 30% higher volume production from Customer A, according to management.</li>
<li>We forecast AZTECH to deliver a 18.4% net profit CAGR between FY21F and FY23F from strong IoT demand and a robust order book.</li>
<li>Initiate coverage on AZTECH with an Add rating and a P/E-based TP of S$1.91. The group’s order book stands at $489m as of end 1Q21.</li>
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<p><strong>Top 10 best smart security camera in US</strong><br>Aztech Global Ltd (AZTECH) is an electronics manufacturing service provider to blue chip brand owners, primarily for their Internet-of-Things (IoT) and data communication products. Smart security cameras manufactured by AZTECH was voted among the top ten best smart security cameras for 2021 according to Safewise.com. With the global IoT market set to deliver a 20.8% CAGR to reach US$425.2bn by 2023F according to Frost &amp; Sullivan, we believe decreasing average prices of IoT sensors will further accelerate adoption rates. IoT-related revenue accounted for c.88% of AZTECH’s FY20 revenue and we believe should drive future net profit growth, given its higher margin profile.</p>
<p><strong>Factory expansion by 89% is underway to support volume increase</strong><br>Key takeaways from our company visit include: 1) a factory expansion of 89% to c.86,000 sq ft, which is underway at AZTECH’s Johor Bahru plant in Malaysia, 2) Customer A’s (major customer accounting for over 60% FY20 revenue) guidance for an over 30% increase in volume production of its smart security cameras in FY21F, and 3) AZTECH’s expectation of a stronger order book and to potentially start manufacturing a new line of products for Customer A in 2H21F. We believe AZTECH’s smart security cameras offer a compelling price-performance trade off based on our analysis of current market offerings to remain popular among consumers. We forecast AZTECH to register a 18.4% net profit CAGR to achieve net profit margins of 11.6%-11.9% between FY21-23F.</p>
<p><strong>New contracts win and completing the smart home value chain</strong><br>As at end-1Q21, AZTECH has secured 11 new customers and projects, of which they are the sole supplier to two new lines of products of Customer A. Management expects to see contributions from new contract wins to come in FY22F. We believe as consumers continue to invest in the smart home ecosystem, this offers an opportunity for AZTECH to further expand its IoT product manufacturing portfolio within the smart home value chain to drive its multi-year earnings runway, in our view.</p>
<p><strong>Initiate with Add and a P/E-based TP of S$1.91</strong><br>We initiate coverage on AZTECH with an Add rating and a S$1.91 target price based on 16x FY22F P/E supported by capacity expansion and robust order book, which provide strong net profit growth potential of c.18% CAGR over FY21F-23F, in our view. Re-rating catalysts are new customer wins and strong order book. Downside risks include customer concentration risk and high competition.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.
Aztech Global Ltd
Blinking growth





Johor plant’s area expansion by 89% underway by 1H21F to support 30% higher volume production from Customer A, according to management.
We forecast AZTECH to deliver a 18.4% net profit CAGR between FY21F and FY23F from strong IoT demand and a robust order book.
Initiate coverage on AZTECH with an Add rating and a P/E-based TP of S$1.91. The group’s order book stands at $489m as of end 1Q21.





Top 10 best smart security camera in US Aztech Global Ltd (AZTECH) is an electronics manufacturing service provider to blue chip brand owners, primarily for their Internet-of-Things (IoT) and data communication products. Smart security cameras manufactured by AZTECH was voted among the top ten best smart security cameras for 2021 according to Safewise.com. With the global IoT market set to deliver a 20.8% CAGR to reach US$425.2bn by 2023F according to Frost &amp; Sullivan, we believe decreasing average prices of IoT sensors will further accelerate adoption rates. IoT-related revenue accounted for c.88% of AZTECH’s FY20 revenue and we believe should drive future net profit growth, given its higher margin profile.
Factory expansion by 89% is underway to support volume increase Key takeaways from our company visit include: 1) a factory expansion of 89% to c.86,000 sq ft, which is underway at AZTECH’s Johor Bahru plant in Malaysia, 2) Customer A’s (major customer accounting for over 60% FY20 revenue) guidance for an over 30% increase in volume production of its smart security cameras in FY21F, and 3) AZTECH’s expectation of a stronger order book and to potentially start manufacturing a new line of products for Customer A in 2H21F. We believe AZTECH’s smart security cameras offer a compelling price-performance trade off based on our analysis of current market offerings to remain popular among consumers. We forecast AZTECH to register a 18.4% net profit CAGR to achieve net profit margins of 11.6%-11.9% between FY21-23F.
New contracts win and completing the smart home value chain As at end-1Q21, AZTECH has secured 11 new customers and projects, of which they are the sole supplier to two new lines of products of Customer A. Management expects to see contributions from new contract wins to come in FY22F. We believe as consumers continue to invest in the smart home ecosystem, this offers an opportunity for AZTECH to further expand its IoT product manufacturing portfolio within the smart home value chain to drive its multi-year earnings runway, in our view.
Initiate with Add and a P/E-based TP of S$1.91 We initiate coverage on AZTECH with an Add rating and a S$1.91 target price based on 16x FY22F P/E supported by capacity expansion and robust order book, which provide strong net profit growth potential of c.18% CAGR over FY21F-23F, in our view. Re-rating catalysts are new customer wins and strong order book. Downside risks include customer concentration risk and high competition.









(Non-SGX Report) Aztech Global Ltd: Blinking Growth

Singapore

Aztech Global Ltd. is a key technology enabler for the connected world of tomorrow, with a focus on providing one-stop design and manufacturing services. Supported by core strengths in R&D, design, engineering and manufacturing, our key products are IoT Devices, Data-communication products and LED lighting products.

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Aztech Global (AZTECH SP)

(Non-SGX Report) Aztech Global Ltd: Blinking Growth

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

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