Aztech Systems: Another good quarter
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Aztech
Broker House: DMG & Partners
Analyst: Lynette Tan
Price: $0.70
Target : $0.80
Recommendation: BUY (Maintained)
Upside: 14.28%
Summary:
Aztech recorded net profit of S$5.2m in 2Q07, on the back of a 12.9% YoY growth in revenue. Its ODM/OEM segment recorded the strongest growth in 2Q07, and remained the Group’s largest revenue contributor. New product launches in the pipe-line are expected to contribute to revenue growth going forward. Management will continue its cost-saving measures to maintain and boost profitability. Management declared an interim dividend of SGD 0.75 cents per share for 1H07. Maintain BUY.
Strong 2Q07. 2Q07 net profit rose 2.6% YoY to S$5.2m. The results were in line with expectations. Excluding the one-off gain on disposal of factory equipment in 2Q06, net profit would have increased 13.7%. As global use of broadband and home networking applications continue to rise, Aztech’s 2Q07 revenue grew 12.9% YoY to S$61.8m. New customer and contract wins, such as the manufacture of a high-end video conferencing system for Italian customers, during the period also boosted revenue growth. On a sequential basis, revenue and net profit grew 10.8% and 36.9% respectively. This brought 1H07 net profit to S$9.0m, from S$7.2m in 1H06. With its strong performance, Aztech declared an interim dividend of SGD 0.75 cents per share.
Stable margins. Aztech managed to maintain stable margins in 1H07, compared with 1H06, although gross profit margin was slightly lower in 2Q07 (declined to 19.2% from 21.6% in 2Q06) due to lower margin in the CM segment. This was due to the delivery of some products being pushed into 3Q07 from 2Q07. Management indicated that the products have since been delivered. Net profit margin was 8.4% in 2Q07, compared with 9.3% in 2Q06 (7.7% in 1H07 vs 7.1% in 1H06).
Robust outlook. Outlook remains healthy as demand for Aztech’s products continue to be strong. Management expects to achieve record shipments of its ADSL modems in FY07, supported by the continual strong demand for its ADSL 2+ modems. The Group has also started shipment of its Homeplugs to a Singapore customer for the deployment of IPTV. As at 23 July 2007, Aztech has about S$84.4m outstanding orders in its order book. Aztech plans to introduce a wider range of youth electronics such as the remote controlled aeroplane and new VDSL 2 modems. In order to cater to the expected growing demand for its products, Aztech has invested S$11.8m to acquire an office in Shenzhen, China and factory equipment in Dong Guan, China. It has also recently expanded its production capacity with the addition of 3 SMT lines, which would be commissioned in September 2007. With the strong demand, capacity utilization is expected to remain high.
Recommendation. We estimate earnings of S$24.9m (EPS: 6.1 cents) for FY07 and S$30.2m (EPS: 7.4 cents) for FY08. At S$0.70, the stock is trading at 9.5x forward earnings. Maintain BUY with a target price of S$0.80.
Analyst: Lynette Tan
Price: $0.70
Target : $0.80
Recommendation: BUY (Maintained)
Upside: 14.28%
Summary:
Aztech recorded net profit of S$5.2m in 2Q07, on the back of a 12.9% YoY growth in revenue. Its ODM/OEM segment recorded the strongest growth in 2Q07, and remained the Group’s largest revenue contributor. New product launches in the pipe-line are expected to contribute to revenue growth going forward. Management will continue its cost-saving measures to maintain and boost profitability. Management declared an interim dividend of SGD 0.75 cents per share for 1H07. Maintain BUY.
Strong 2Q07. 2Q07 net profit rose 2.6% YoY to S$5.2m. The results were in line with expectations. Excluding the one-off gain on disposal of factory equipment in 2Q06, net profit would have increased 13.7%. As global use of broadband and home networking applications continue to rise, Aztech’s 2Q07 revenue grew 12.9% YoY to S$61.8m. New customer and contract wins, such as the manufacture of a high-end video conferencing system for Italian customers, during the period also boosted revenue growth. On a sequential basis, revenue and net profit grew 10.8% and 36.9% respectively. This brought 1H07 net profit to S$9.0m, from S$7.2m in 1H06. With its strong performance, Aztech declared an interim dividend of SGD 0.75 cents per share.
Stable margins. Aztech managed to maintain stable margins in 1H07, compared with 1H06, although gross profit margin was slightly lower in 2Q07 (declined to 19.2% from 21.6% in 2Q06) due to lower margin in the CM segment. This was due to the delivery of some products being pushed into 3Q07 from 2Q07. Management indicated that the products have since been delivered. Net profit margin was 8.4% in 2Q07, compared with 9.3% in 2Q06 (7.7% in 1H07 vs 7.1% in 1H06).
Robust outlook. Outlook remains healthy as demand for Aztech’s products continue to be strong. Management expects to achieve record shipments of its ADSL modems in FY07, supported by the continual strong demand for its ADSL 2+ modems. The Group has also started shipment of its Homeplugs to a Singapore customer for the deployment of IPTV. As at 23 July 2007, Aztech has about S$84.4m outstanding orders in its order book. Aztech plans to introduce a wider range of youth electronics such as the remote controlled aeroplane and new VDSL 2 modems. In order to cater to the expected growing demand for its products, Aztech has invested S$11.8m to acquire an office in Shenzhen, China and factory equipment in Dong Guan, China. It has also recently expanded its production capacity with the addition of 3 SMT lines, which would be commissioned in September 2007. With the strong demand, capacity utilization is expected to remain high.
Recommendation. We estimate earnings of S$24.9m (EPS: 6.1 cents) for FY07 and S$30.2m (EPS: 7.4 cents) for FY08. At S$0.70, the stock is trading at 9.5x forward earnings. Maintain BUY with a target price of S$0.80.
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