1H24 results review
1H24 revenue a tad below expectations, earnings in line. Aztech reported 2Q24 revenue of SGD244.6m, up 7.8% y/y and almost double from 1Q24 as the previous quarter was affected by a snowstorm. Net profit increased by 4.2% y/y to SGD30.8m. For 1H24, net profit gained 8.7% y/y to SGD46.7m, on the back of a 4% decline in revenue to SGD373.2m. Overall, revenue and net profit for 1H24 account for 36%/41% of our forecast. Revenue is slightly below expectation but net profit in line. The split between 1H:2H is usually about 40:60.

Higher DPS declared. An interim DPS of 5Scts was declared, higher than the 3Scts in 1H23. This gives rise to a much higher payout ratio of 83% in 1H24, vs 54% in 1H23.

Commendable margins. 2Q24 net margin of 12.6% is a tad higher than 12.4% in 1Q24 but much stronger than the 11.2% in FY23. This achievement is mainly due to Aztech’s core strengths in R&D, design and engineering.

Healthy balance sheet with strong net cash of SGD274m as at end Jun 2024, c.10% higher vs end December 2024.

Increasing offerings to provide integrated manufacturing solutions. Aztech has commenced the setting up of plastic injection machines at the Pasir Gudang plant in Johor,
Malaysia to expand its offerings. Completion is expected in 3Q 2024 with mass production to start from 4Q 2024. This positions the group to provide competitive and integrated manufacturing solutions to build on the momentum of acquiring new customers to diversify its customer base. The current plant at Pasir Gudang, Johor, still has 15%-20% room for expansion.

New products, new customers. Three products from the health-tech and consumer segments have successfully entered commercial production. There are five new products in the
communication, consumer and health-tech segments scheduled to achieve commercial production by year end. Contribution from new customers is still small in FY24, expected to be <10% of total revenue, but this should improve as the five new products enter mass production next year.

Healthy orderbook. Aztech’s order book stood at SGD304.4m as at 30 July 2024, vs SGD456m as at 23 April 2024. Majority of the order book is scheduled for completion in FY24. Order lead time is now much shorter now, about 3 months, with the recovery of the supply chain.

Earnings & Recommendation
Reduced revenue projection by 10%, raised earnings by 2-4% on higher margins assumption. Given the slightly weaker than expected revenue for 1H24, we have reduced our revenue projection for FY24F/FY25F by c.10% each. Net earnings, however, were raised by about 2%-4% on higher margins assumption of 12.6% for both FY24F and FY25F, vs our previous assumption of 11%. We expect the group to achieve similar net margins in 2H24 vs 1H24, given that revenue is typically higher in 2H and the group should enjoy some operating leverage. On the back of the slightly higher earnings, our TP is raised slightly to SGD1.27, from SGD1.25 previously, still pegged to PE of c.8x, the average PE since listing in March 2021, on FY24F earnings. Maintain BUY.