Brokers’ take: CGS-CIMB slashes Aztech Global target by half in anticipation of margin pressure
Yong Hui Ting
AZTECH Global’s net margin could slip, given the higher operating costs from Covid-19 disruptions in China, inflationary pressures and slowing economic growth.
CGS-CIMB on Monday (Jul 18) slashed the target price for the manufacturing and engineering company by almost half, from S$1.59 to S$1.16, but reiterated an “add” call on the stock as it foresees its Internet of Things products to remain a key opportunity.
As at 10.10 am on Tuesday, shares of Aztech were trading 0.6 per cent or S$0.005 lower at S$0.79.
Analyst William Tng noted in his research report that Aztech’s order book stood at S$713 million at the time of its Q1 2022 business update. He believes this was largely contributed by the Internet-enabled home security video cameras under the Blink brand by Amazon.
This could add to Aztech’s topline growth, it being a key supplier for the Blink products, said Tng, who maintained his revenue forecast for the company for FY2022 to FY2024.
Ahead of the company’s H1 2022 results, CGS-CIMB estimated Aztech’s revenue and net profit to stand at S$304 million and S$34 million respectively — representing 22.1 per cent and 15.7 per cent growth year on year.
Tng however reduced his gross profit margin assumptions by 0.3 to 0.8 percentage point after taking into account margin risks from higher costs, inflationary pressures and slower economic growth.
The brokerage also cut its FY2022 to FY2024 earnings per share forecasts for the company by 2.2 to 5.9 per cent, as it highlighted further downside risks in component shortages and Covid-related supply chain disruptions.
Upside factors, on the other hand, could come from potential new customer wins as well as easing of component tightness, said Tng.
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