RHB Investment Research Reports

Aztech Global - Enhancing Production Capabilities to Drive Growth

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Publish date: Thu, 10 Oct 2024, 10:37 AM
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  • Riding on the rapid growth of the IoT trend. Aztech Global offers exposure to the growing IoT segment, which includes machine-based intelligence, in- built monitoring and connectivity to consumer and commercial devices – areas that are growing rapidly due to the increasing number of active connected endpoints. AZTECH is trading at an attractive a 7.6x FY23 P/E, and offers a c.8% yield.
  • Re-visit to the Pasir Gudang plant. Since our last visit to AZTECH’s Pasir Gudang plant in Johor last year, most of its production lines located in China’s Dongguan plant and Gelang Patah in Johor, Malaysia, have now shifted to its Pasir Gudang plant. The group is now experiencing higher utilisation rates – c.50% at the Pasir Gudang plant. The plant now boasts of 12 surface mount technology (SMT) lines, 30 assembly and test lines, one new product introduction (NPI) line, five manual insertion lines, 16 plastic injection lines and five packaging lines. Utilisation is healthy, with 12 of 16 SMT lines currently in use during our recent visit. More automation and productivity enhancement have also gotten underway with digital production planning and monitoring systems now installed at the Pasir Gudang plant, eliminating manual tracking of production plans. Currently, as many as nine lines are dedicated to producing monitoring products for its key customer. Production yield is high, at over 97%. It is also automating some of its manpower processes in the production line for some future headcount savings.
  • Positive growth outlook for IoT. According to market insight and strategic business intelligence firm IoT Analytics, there will likely be more than 40bn IoT connections by 2030. The number of connected IoT devices in 2023 was 16.6bn (+15% YoY), and is expected to surge 13% YoY to 18.8bn by the end of this year.
  • Strengthening capabilities to drive growth. 1H24 earnings were SGD46.7m (+8.7% YoY) on the back of SGD373m (-4% YoY) revenue, dragged by lower sales to Europe and lower 1Q24 production in China led by snowstorms. Its orderbook is robust, at SGD304m as of 30 Jul with the majority to be realised as revenue by the end of FY24. It declared an interim DPS of 5 SG cents, amounting to an 83% payout ratio. Growth for AZTECH will be driven by better competencies in R&D, higher capabilities in manufacturing such as setting up of plastic injection machines, and new product activities from new and existing customers. These include new health care technology products which are under preparation for commercial production.
  • Valuation and key risks. AZTECH currently trades at 7.6x FY23 P/E, and has a net cash of SGD0.36/share. Key risks include high customer concentration from its key customer (>80% of 1H24 sales).

Source: RHB Research - 10 Oct 2024

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