SGX Stock Targets :: Your One Stop Analyst Reports Blog

Comment on Results: Aztech reported 2Q07 profit of S$5.2m, up 3% y-o-y and 37% q-o-q.
The results were in line with our estimate of S$5.4m in a seasonally slow second quarter. We want to highlight two major points.

1. Excluding one-off gain of S$1m in 2Q07 from disposal of Aztech building and factory equipment, operating profits grew at 13% y-o-y, inline with the revenue growth of 13% y-o-y.
2. Projects worth S$13m for a major customer slipped into 3Q07 due to a delay in component sourcing, otherwise 2Q07 numbers would have been even better. Subsequently, we
   hope to see a strong 3Q07 with contribution from these projects.

The cash flow from operations improved to $4.4m from S$2.9m last year due to improvement in working capital management. Management revealed that current order book stands healthy at S$85m (providing three-month visibility) slightly better than S$83m in 1Q07. The company declared an interim dividend of 0.75 cents compared to 0.50 cents last year.

Outlook: We keep our estimates unchanged with net earnings of S$26.8m for FY07. As seen historically, 3Q07 should be much better than 2Q07 while 4Q07 should be the strongest quarter. We believe that 65-70% of the full year earnings could come from the second half with the following drivers in place.

• Launch of PC-less Skype phoneb in Aug 07 and 3.5G adapters towards the end of FY07.
• Orders from a new European customer for high-end video conferencing phone using VoIP.
• Shipment of ADSL2+ modems to one of the largest Telco in the US.
• Shipment of Homeplug adapters to a satellite service provider in the US.

Recommendation: We maintain BUY with 12-month target price of S$0.94 pegged at 10.8x FY08 earnings, a 10% discount to the peer average of 12x FY08 earnings. Expected launch of new products in 3Q07 should be the catalyst for the stock price.