• 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. The group’s order book stands at $489m as of end 1Q21.

Top 10 Best Smart Security Camera in US

• Aztech Global (SGX:8AZ) 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 & Sullivan, we believe decreasing average prices of IoT sensors will further accelerate adoption rates.
• IoT-related revenue accounted for ~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 ~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 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 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 Coverage on Aztech With ADD

• Summary of analysis to be update. Meanwhile, refer to the 35-page report attached below for complete analysis on Aztech Global (SGX:8AZ).

Source: CGS-CIMB Research - 22 Apr 2021