• Aztech's share price has fallen 16.4% from its IPO price of S$1.28, and 15.7% from its 1H21 results announcement’s closing price of S$1.27.
• We think Aztech is currently managing the COVID-19 challenge and component shortages well though these do pose earnings downside risks.
• Hence, we reiterate our ADD call and target price of S$1.82 for Aztech as we expect stronger 2H21F earnings to re-rate its share price.

Keeping COVID-19 in Check

• Aztech (SGX:8AZ) has so far not faced any major disruptions to its production output despite the high number of COVID-19 cases in Malaysia. Aztech is managing the situation by ramping up its production capacity in China to cover any shortfall in the Malaysian factory.
  • In China, 100% of its eligible employees have had their COVID-19 vaccination, of which 87% had completed their second dose.
  • In Malaysia, about 33% of its eligible employees have been vaccinated against COVID-19, of which 5% has completed the full vaccination regime. Other than putting in place safe management practices, Aztech has encouraged its employees to apply for their own vaccination under the national vaccination programme.

Supply Chain Disruption Could Affect 2H21F Earnings

• As at 30 July 2021, Aztech’s order book was not lose any orders but see some orders being pushed into 1H22F.

Concerns Priced in - ADD Aztech

• We believe the current COVID-19-led component price of S$1.82 for Aztech based on unchanged P/E of 15x FY22F EPS (Singapore technology sector average).

• Share buybacks could help lend support to its share price and we believe Aztech is aiming to obtain its share buyback mandate via an EGM before end-2021.
• Downside risks to our call are component shortages and COVID-19 related supply chain disruptions. New customer wins and stronger earnings could re-rate the tock.

Source: CGS-CIMB Research - 3 Sep 2021