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

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

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>
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<h2>Aztech Global Ltd</h2>
<h3>All eyes will be on execution in FY21F</h3>
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<li>AZTECH registered strong order book growth of 24% from 1Q21 to reach S$604.4m as of end-Jul 21 and aims to maintain profit margin in 2H21F.</li>
<li>We estimate a bull-case scenario of S$704m(+45.4% yoy) for FY21F revenue if AZTECH can obtain sufficient components given the current shortage.</li>
<li>Reiterate Add with TP of S$1.82 based on lower 15x FY22F P/E to reflect component shortage and Covid-19 risks.</li>
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<p><strong>1H21 results in line; registered strong order book growth</strong><br>AZTECH’s 1H21 revenue/PATMI of S$249.7m/S$29.4m (+93.4% yoy/+125.9% yoy) was in line, forming c.40% of our full-year forecast (AZTECH has a 40:60 seasonality). The strong growth was mainly driven by its IoT and data communication segment which delivered 128.7% yoy revenue growth to S$232.6m. NPM expanded to 11.8% (+1.7% pts yoy), helped by 1) strong demand for its IoT and data communication products which commanded higher margins, 2) better operating costs controls and 3) tax incentives for its China operations. Order book growth continued to gain strong traction, registering 24% growth from 1Q21 to S$604.4m as of end-Jul 21.</p>
<p><strong>Demand still strong; execution will be key in 2H21F</strong><br>Our key takeaways post earnings call are 1) Customer A accounted for c.65% of revenue in 1H21 and AZTECH is on track to deliver its orders of c.12m smart security cameras for FY21F, 2) demand for Customer A’s smart security cameras continue to outpace supply, 3) component shortages continue to persist which caused some drag in production in 1H21 and management expects the situation to continue until 2H22F, 4) pandemic and supply chain-related risks will continue to be headwinds in 2H21F and 5) AZTECH hopes to maintain profit margin in 2H21F. Going into 2H21F, AZTECH continues to see strong demand for its products but getting components remains a challenge. In our view, AZTECH’s 2H21F performance hinges on its ability to secure enough components to fulfill customers’ orders.</p>
<p><strong>Our bull-case scenario sees FY21F revenue at S$704m</strong><br>Our checks on 30 Jul 21 found that AZTECH’s cameras continue to rank in the top 10 Best Sellers list for surveillance and security cameras on Amazon.com in the US. We maintain our FY21F revenue of S$625.9m, assuming a 40:60 seasonality. Out of the S$604.4m outstanding order book, AZTECH expects S$454.4m to be completed in FY21F. With 1H21 revenue of S$249.7m, FY21F revenue upside could be c.S$704m (+45.4% yoy) if AZTECH can secure enough components to fulfill orders.</p>
<p><strong>Reiterate Add, with a lower TP of S$1.82</strong><br>We tweak up FY21F-23F EPS by 1.5% to factor in lower tax rate assumptions. We lower our TP to S$1.82 as we remain cautious, with a lower P/E of 15x FY22F EPS (Singapore technology sector average) to account for operational risks from component shortages and Covid-19 related supply chain disruptions. Upside risk is new customer wins.</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
All eyes will be on execution in FY21F





AZTECH registered strong order book growth of 24% from 1Q21 to reach S$604.4m as of end-Jul 21 and aims to maintain profit margin in 2H21F.
We estimate a bull-case scenario of S$704m(+45.4% yoy) for FY21F revenue if AZTECH can obtain sufficient components given the current shortage.
Reiterate Add with TP of S$1.82 based on lower 15x FY22F P/E to reflect component shortage and Covid-19 risks.





1H21 results in line; registered strong order book growth AZTECH’s 1H21 revenue/PATMI of S$249.7m/S$29.4m (+93.4% yoy/+125.9% yoy) was in line, forming c.40% of our full-year forecast (AZTECH has a 40:60 seasonality). The strong growth was mainly driven by its IoT and data communication segment which delivered 128.7% yoy revenue growth to S$232.6m. NPM expanded to 11.8% (+1.7% pts yoy), helped by 1) strong demand for its IoT and data communication products which commanded higher margins, 2) better operating costs controls and 3) tax incentives for its China operations. Order book growth continued to gain strong traction, registering 24% growth from 1Q21 to S$604.4m as of end-Jul 21.
Demand still strong; execution will be key in 2H21F Our key takeaways post earnings call are 1) Customer A accounted for c.65% of revenue in 1H21 and AZTECH is on track to deliver its orders of c.12m smart security cameras for FY21F, 2) demand for Customer A’s smart security cameras continue to outpace supply, 3) component shortages continue to persist which caused some drag in production in 1H21 and management expects the situation to continue until 2H22F, 4) pandemic and supply chain-related risks will continue to be headwinds in 2H21F and 5) AZTECH hopes to maintain profit margin in 2H21F. Going into 2H21F, AZTECH continues to see strong demand for its products but getting components remains a challenge. In our view, AZTECH’s 2H21F performance hinges on its ability to secure enough components to fulfill customers’ orders.
Our bull-case scenario sees FY21F revenue at S$704m Our checks on 30 Jul 21 found that AZTECH’s cameras continue to rank in the top 10 Best Sellers list for surveillance and security cameras on Amazon.com in the US. We maintain our FY21F revenue of S$625.9m, assuming a 40:60 seasonality. Out of the S$604.4m outstanding order book, AZTECH expects S$454.4m to be completed in FY21F. With 1H21 revenue of S$249.7m, FY21F revenue upside could be c.S$704m (+45.4% yoy) if AZTECH can secure enough components to fulfill orders.
Reiterate Add, with a lower TP of S$1.82 We tweak up FY21F-23F EPS by 1.5% to factor in lower tax rate assumptions. We lower our TP to S$1.82 as we remain cautious, with a lower P/E of 15x FY22F EPS (Singapore technology sector average) to account for operational risks from component shortages and Covid-19 related supply chain disruptions. Upside risk is new customer wins.













(Non-SGX Report) Aztech Global Ltd: All Eyes Will Be on Execution in FY21F