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By Pehon | June 29, 2007
When DBS first initiated a “BUY” call on Aztech in March 07, it started investor’s interest in Aztech, sending the share price from $0.30 to the current high of $0.57.
Aztech is an electronics company that mainly deals with ODM/OEM sales and contract manufacturing and household electronics like ADSL products. If you don’t already know, the company’s products can be found in several countries including Hong Kong, South Africa and UAE. There is nothing to indicate this list will not grow.
In the most recent Quarter (Q107), the company announced a turnover growth of 20.5% due to increase in sales from increased orders from existing customers and new coustomers.
Gross margin was also 19.1% over 16.8% from a year ago. On the back of the increased margin and increased turnover, the company reported a EBITDA growth of 39.1% and a 79.2% increase of net profit.
As a result, despite an increase in shares in the market, the company was able to achieve an EPS growth of 75.5%.
This good result is reflected over the last few quarters, and is expected to continue through the next few quarters.
“Company’s turnover, profit and EPS growth is in line with my Growth Stock strategy”
The company attributed the growth to their successful strategy in “focusing on higher margin products”. This can be seen in some of their upcoming products including PC-less Skype Phone, and even starting to feature themselves in Remote Control Helicopter. These products are expected to contribute significantly to its overall sales.
In terms of the company’s floating shares, as you can see, 53% are already owned by institutional investors. I give a rough estimate of 40% of the issued shares are “free floating” shares. In addition, the company is 6.5% owned by DBS. Not suggesting that they would overplay their target price of Aztech to make a profit (its not the way it works anyway), DBS has been providing constant coverage on Aztech to consistantly arouse investor’s interest in the company.
“Aztech is able to get upgrades from prominent analyst very regularly”
The product level breakdown shows growth in its core business of Contract Manufacturing. Its worth nothing that Aztech has moved on from their previous business of having few large customers to the current customer base of 50. In fact the top 5 customers account for less than 1/3 of its total business. This would really enhance the stability of its turnover, reducing reliance on a few large customers. This future ensures the company’s growth.
The company has also increased their manufacturing utilization to 80%, and started production for 2 new large costomers, contributing US$40-50M in FY07. Being cash rich, it should not be a problem for Aztech to grow its capacity for continued business growth.
However, the company’s shares have growth close to 100% sicne the start of the year. I’ll leave the technical part to JL, but if you’re looking for a medium to long term investment, Aztech is a company, too good to overlooked.
“Aztech is a company with good fundamentals. Short term volatility aside, Aztech is definitely a fundamental BUY”
I do not like Aztech’s continous dilution of issued shares in the market. This is however, a rather insignificant point at present time.
However,I like Aztech’s continous ability to churn out new and innovative products year by year. In addition, i like the good response from retail investors to analyst reports on Aztech, without fail everytime. On top of that, we like Aztech’s cheap current valuation of 8.0-9.0 PE, a large discount to its peers in Asia.
BUY, with a target of $0.80.
Vested at $0.57 on 02-07-07
Topics: Aztech |
Comments
In the most recent Quarter (Q107), the company announced a turnover growth of 20.5% due to increase in sales from increased orders from existing customers and new coustomers.
