Brokers' take: Analysts trim Aztech Global's target prices on component shortage risks

DBS and CGS-CIMB are lowering their target prices for technology solutions provider Aztech Global 8AZ : 8AZ 0%, as analysts remain cautious amid operational risks arising from component shortages.

DBS has lowered its target price by S$0.11 to S$1.74 while CGS-CIMB trimmed its target price by S$0.09 to S$1.82. The research houses have maintained their respective "buy" and "add" calls on the group.

The lower target prices come despite Aztech more than doubling its net profit to S$29.4 million for the first half ended June, from S$13 million in the year-ago period.

Revenue jumped 93.4 per cent to S$249.7 million on the back of an increase in sales volume for Internet of Things (IoT) devices and data communication products.

Still, Aztech's H1 results came in "slightly below" DBS's expectations, weighed down by industry-wide component shortages.

"Though Aztech is still able to secure most of the components, leveraging on its strong customer-supplier relationship, there is a small amount of critical components that Aztech has to pay a higher price of about 2 to 5 per cent more in order to secure. And not 100 per cent of the cost increase can be passed to customers," said DBS analyst Ling Lee Keng in a report on Monday.

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As such, she said, Aztech's gross margin fell to 27 per cent for H1, from 30.1 per cent in the corresponding half-year period a year ago.

"Aztech is also exploring with its customers to look for new suppliers but this path could be more costly," Ms Ling said. "We are more cautious, as we expect the component shortage issue to worsen in H2 2021 and to see an improvement only in 2022."

CGS-CIMB analyst William Tng is of the opinion that Aztech's H2 performance hinges on its ability to secure enough components to fulfil customers' orders.

He noted that Aztech's order book growth continued to gain strong traction, rising 24 per cent from Q1 to hit S$604.4 million as of end-July.

"Going into H2 2021, Aztech continues to see strong demand for its products but getting components remains a challenge," Mr Tng said.

Shares of Aztech Global were trading 3.2 per cent or S$0.04 lower at S$1.23 as at 1.41pm on Monday.

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