Brokers' take: DBS trims Aztech Global's TP on lower tech stock estimates

FOLLOWING the de-rating of technology stocks worldwide, DBS Group Research has cut Aztech Global's 8AZ target price (TP) to S$1.54 from S$1.67, despite its "attractive valuations" and likelihood of posting strong earnings results for the financial year 2021.

The new TP of S$1.54 offers a 67 per cent upside from its last close price of S$0.92 on Tuesday (Feb 15).

In a report on Wednesday, DBS analyst Ling Lee Keng has maintained her "buy" call and said the new TP is pegged to 12 times the financial year 2022 peer average, which is lower than the previous 13 times, due to most tech stocks being re-rated against FY2022 estimates.

She observed that Aztech is trading at a price/earnings-to-growth (PEG) ratio of only 0.23, compared to peers that are trading at PEG ratios of 0.8.

The target price is based on the current 7.2 times FY2022 forecast valuation, which is around 1 standard deviation of its average price-to-earnings ratio since its listing in March 2021, she said.

As for the group's FY2021 earnings that is slated to come out on Feb 22, she forecasts net earnings of S$72.3 million, in line with the market consensus of S$72.4 million.

"Nine-month net earnings already accounted for 66 per cent of our FY2021 projections, versus 55 per cent in FY20," she said, adding that this implies no change year on year for Aztech's Q4 FY2021, as Q4 FY2020 was "exceptionally strong".

She expects Aztech's net margin to reach 12 per cent, higher than the industry average, as it reported 12.1 per cent for the first 9 months of FY2021 in spite of supply chain disruptions.

Ling also projects strong earnings growth for FY2021-2023 in a range of 20-35 per cent, riding on the "buoyant" Internet of Things (IoT) market.

The IoT market has contributed to Aztech's strong order book with more than 90 per cent revenue exposure, and order momentum should remain strong and result in a revenue growth of 25 per cent in FY2021 and an additional 37 per cent in FY2022, in her view.

However, she cautioned that there are likely to still be component shortage issues that may only resolve in the second half of 2023, when the bulk of new production capacity is in full operation.

Other risks to DBS's view include operation risks for its facilities in Dongguan, China, and worsening supply chain disruption.

Shares of Aztech were trading at S$0.925, up S$0.005 or 0.5 per cent, as at 11.53 am on Wednesday.

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