Aztech's 3Q21 Earnings Missed Expectation; But Most Negatives Look Priced in

• Aztech Global (SGX:8AZ)'s 3Q21 PATMI of S$18m (+3% y-o-y) missed and accounted for 60%/63% of our/street’s estimates. This was due to the worsening of components shortage.
• We cut FY21-23E PATMI forecast for Aztech Global by 11% to reflect FY21E order book, and lowered expectations for FY22-23E. Our target price for Aztech Global falls to S$1.26, as we roll forward to 10x FY22E P/E (from 18x FY21E), a discount vs global CMS/ODM peers at 11x/12x respectively to account for risks of further earnings disappointment.
• Maintain BUY rating on Aztech Global as we believe most negatives are priced in.

Components Shortage Stalls Momentum

• The current order book of Aztech Global for FY21E delivery is S$210m, inferring FY21E revenue of S$600.7m (+24% y-o-y) – if there are no further delays in receiving components. This infers a S$79m shortfall to our prior FY21E expectation.
• Of order book slated for FY22E (S$426m), most should be delivered in 1H22, and some in 3Q22. Management will work hard with suppliers to secure components, or even pull in components, where possible.

Strong Net Margin Due to Better Mix

• Aztech Global's 9M21 are 11.4-11.8% to factor in some cost downs and costs that are not fully passed through.

Shortage Needs to Dissipate for Meaningful Re-rating

• Maintain BUY rating on Aztech Global as we believe most for upside.

• Traders in Aztech Global may also like AEM (SGX:AWX) (BUY, target price S$5.77), UMS (SGX:558) (BUY, target price S$2.10) and Frencken (SGX:E28) (BUY, target price S$2.63) for Singapore tech exposure. Read more at Singapore Semicon Equipment - Maybank Kim Eng 2021-10-08: Plenty To Look Forward To.

Source: Maybank Kim Eng Research - 15 Oct 2021