Excerpts from Maybank report

Aztech Global (SGX: 8AZ)

• Aztech Global is a key enabler and technology hardware manufacturer for IoT, datacomm and LED electronics products.
• Worst is over and raise our FY23E and 24E NPAT by 10.4% and 12.4% due to stronger orders.

We lift our TP to SGD1.02 from SGD0.79 based on a higher 7x FY23E P/E from 6x and upgrade to BUY from HOLD due to the positive outlook.

Aztech Global Financial Results

Aztech Global reported a dismal FY22, mainly due to a FX contract loss of SGD56.6m which caused NPAT to drop 9.7% YoY to SGD67.2m, way below our and consensus estimates.

On the bright side, core business remains strong with its main customer (<80% of orderbook) expected to place 15-20% more orders in FY23E as it continues to benefit from the diversification trend away from China.

As a result, we think the worst is over and raise our FY23E and 24E NPAT by 10.4% and 12.4% due to stronger orders despite the current macro environment.

All FX losses accounted for in FY22

As 30%+ of its costs are in RMB, Aztech entered a FX contract to hedge against the USD weakening against the RMB. With the strengthening of the USD, it incurred a fair value loss on derivative financial instruments of SGD56.6m.

Going forward, management will rely on natural hedging and we should not see such FX derivative losses.

Orders still strong, especially from key customers

Management expects orders to remain robust, especially from its key customer who is still likely to make 15-20% more orders in FY23E. Its order book stood at SGD718.6m at 17 Feb 2023 with a shorter lead time.

We believe that Aztech is benefiting from the on-going trend of diversification away from China. Its utilisation rates at its Dong Guan factory in China and Malaysia is close to 100%, signalling positive quarters ahead.

Valuation/Recommendation

We lift our TP to SGD1.02 from SGD0.79 based on a higher 7x FY23E P/E from 6x and upgrade to BUY from HOLD due to the positive outlook.

Without the FX loss, core NPAT would have been SGD123m, a record year for Aztech. We believe that management will likely engender a strong earnings rebound in FY23E and valuations look to be bottoming at 3.7 ex cash FY23E P/E.

You can find the full report here and the company website here.