Aztech Global stokes bullish sentiment with IoT focus, chunky margins

• Aztech Global Limited (SGX: 8AZ) share price rallies to a new peak of S$1.56 per share
• DBS analysts said Aztech is ‘in a sweet spot’ to ride the IoT market’s growth
• Maybank likes Aztech’s fatter-than-average margins and growth prospects
• Buy and sell Singapore stocks with an IG account

Aztech Global stock price: What’s the latest?

Shares of stock-market newcomer Aztech Global closed at S$1.52 on Monday (26 April 2021), advancing 7.8% on a heavy volume of 27.6 million securities. The stock then hit S$1.56 at 9:25 SGT on Tuesday.

The electronics manufacturer went public in March 2021. Its key products include Internet of Things (IoT) devices, data-communication products, and LED lighting products.

Of the three research teams that initiated coverage last week, all issued ‘buy’ recommendations.

CIMB set a target price of S$1.91, noting that downside risks include customer concentration risk and high competition.

Will Aztech ride the swelling IoT wave?

DBS Group Research, in giving a S$1.85 target price, pointed out that Aztech Global has about 90% revenue exposure to the IoT market, which remains at a nascent stage of growth.

‘Aztech is in a sweet spot to ride on the fast-expanding IoT market, which is projected to grow at a CAGR (compound annual growth rate) of 20.8% during 2019-2023,’ DBS wrote.

CIMB’s research team said that as consumers invest in the smart-home ecosystem, Aztech has the opportunity to further broaden its IoT product-manufacturing portfolio within the smart-home value chain to drive its multi-year earnings runway. CIMB set a target price of S$1.91.

Similarly, Maybank’s Lai Gene Lih sees Aztech as a proxy of the consumer IoT industry, through the smart security cameras and other new products for ‘Customer A’, a US-listed e-commerce retailer. Lai also touted Aztech’s wallet share gains from a German e-commerce retailer, ‘Customer C’.

What sets Aztech apart from its rivals?

DBS analysts opined that Aztech’s research and development (R&D) capabilities and technological strength enable the group to be a one-stop service provider, and are its ‘key differentiators’ from peers.

R&D helps Aztech engage customers early in product conceptualisation, and enables rapid commercialisation of emerging trends, Maybank’s Lai said.

Another of the company’s strengths is its diversified footprint. Aztech intends to double its manufacturing capacity through a new plant outside of China, which will diversify geographic risks from diseases, trade tensions, and disasters, Maybank added.

Will Aztech continue to enjoy ‘superior’ margins?

Aztech’s margins are ‘among the highest in the industry’ and ‘superior’ to Singapore-listed peers, according to Lai.

Robust R&D, design capabilities, and strong execution could help sustain margins in the near to mid-term, he wrote.

Maybank is eyeing a S$1.86 target price, based on 18 times of core 2021 price-to-earnings, above its peers’ 13.4-13.5 times. Lai believes this is ‘justified’ given Aztech’s ‘superior growth and margin prospects’.

DBS projected ‘above-industry average’ net margins of 11.5% in 2021 and 2022, driven by the IoT market’s solid growth and the group’s efforts to improve productivity and efficiency.

‘This should lead to robust earnings growth of about 40% in 2021 and 2022,’ DBS added.

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