• Constrained by component shortages, Aztech's 3Q21 revenue was below expectations at 22.5%/21.7% of our/Bloomberg consensus full-year forecast.
• Aztech's 3Q21 core net profit was slightly below expectations at 23.8% of our/ Bloomberg consensus full-year forecast.
• Reiterate ADD. Our target price for Aztech is lowered as we adjust our FY21F-23F revenue expectations due to the ongoing component shortages.

Respectable Performance in the Face of Component Shortages

• Aztech (SGX:8AZ)’s 3Q21 revenue grew 6% y-o-y to S$141.1m while net profit grew 2.9% y-o-y to S$18.0m. Net profit margin fell to 12.8% in 3Q21 vs 13.1% in 3Q20.
• For 9M21, revenue grew 49% y-o-y to S$390.7m while net profit grew 55.4% y-o-y to S$47.4m. 9M21 net profit margin was 12.1% vs 11.6% in 9M20.
• On a sequential basis, Aztech's net profit margin improved to 12.8% in 3Q21 from 12.1% in 2Q21 and 11.4% in 1Q21. The improvement in net profit margin was due higher productivity, continuing exit from lower-margin products and tax incentives for its China operations. Its Internet of Things (IoT) and data communication products segment revenue surged 70% y-o-y to S$368.1m in 9M21 and was the key revenue contributor to 9M21 revenue at 94.2%.

Component Shortages the Key Issue

• Component availability remains the key downside with its full workforce in Malaysia by the third week of Oct.

Reiterate ADD Rating for Aztech Supported by 23% FY22F EPS Growth

• Management believes that the global share forecasts for FY21F-23F are thus reduced by 0.9-3.9%.
• We reiterate our ADD call on Aztech based on unchanged P/E of 15x 2022F EPS (peer sector average).

• Share buybacks (mandate approved by shareholders on 13 2021) could help lend support to Aztech's share price.
• Downside risks to our call are component shortages and COVID-19 related supply chain disruption.
• New customer wins and stronger earnings could re-rate the stock.

Source: CGS-CIMB Research - 15 Oct 2021