Aztech Global Ltd - 2H22F seasonality effect could be weaker

3Q22F net profit could grow 16.9% yoy

Aztech could report 3Q22F net profit of S$21.05m (+16.9% yoy/-27.3% qoq) on 3 Nov 2022 (after market close). 3Q22 revenue was likely S$217.44m (+54.1% yoy/-8.1% qoq). To recap, Aztech reported 2Q22 revenue/net profit of S$236.6m/S$29.0m as the company executed well to meet order backlog in that quarter.

Estimates: margins could be pressured

Revenue: FY22-24F forecasts are unchanged as Aztech's order book remains fairly resilient. However, supply chain, logistics and manpower issues could continue to pressure margins. We cut FY22-24F gross profit margin by 0.5-1.0% pt leading to a 3.8-7.5% decrease in EPS estimates. FY23F EPS is reduced by 7.5% to S$0.124.

Valuation: switch to -0.5 s.d. P/E

What has changed: We now value Aztech at 7.70x (0.5 s.d. below its 2-year average forward P/E multiple) on our reduced FY23F EPS, resulting in a lower S$0.96 TP as the global economic outlook turns more uncertain. Previously, we valued Aztech at 9.1x FY23F P/E (2-year average forward P/E) as the economic outlook then was more robust.

Aztech is currently trading at 5.92x our FY23F EPS. This is below its 2-year (FY21-22) -1 s.d. forward P/E of 6.70x.

Reiterate Add

We reiterate Add on Aztech despite the TP and earnings cuts as a) Aztech has a net cash balance sheet to weather the downturn, b) projected dividend yields of 7.96-9.95% over FY22-24F will provide some relief and c) we think EPS could still grow 10.2%/14.6% in FY23F/24F. Key re-rating catalysts: potential new customer wins, winning other projects from its main customer, and improving component shortages.

Downside risks: more component shortages, Covid-19-related supply chain disruptions, and order cancellations by customers due to economic slowdown affecting demand.