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By Pehon | July 26, 2007
Aztech recently announced a its 2Q07 and achieved in 1H07 vs 1H06 a Net Profit increase of 26.4%, with a Turnover increase of 16.4%.
However, if you were to look at the 2Q07 vs 2Q06 comparison, you’ll see a 12.9% increase in Turnover, versus a small 2.0% increase in Net Profit.
Is there something wrong with the performance of the company?
There are probably some investors who think so. Aztech’s stocks has fallen from grace, from its high of $0.745 to the current close of $0.69. However, some might attribute the fall to the recent market weakness. Its probably the the combination of the 2.
However, if you were to look closer at the 1H06 results, there was a 1 off-gain on disposal of some properties and equipment, contributing to $1.01M in 1H06. If you were to take that 1 off gain out, and compare the core business growth in 2Q07 with 2Q06, you’ll see that the Net Profit would have grown 13.7%. (source DBS report 26-07-07)
“1 off gains should be taken out when comparing core business growth. As 1 off gains are not part of the core business”
In addition, there were projects worth $13M due for 2Q07 delayed to the next quarter due to delays in component sourcing (source DBS report 26-07-07). That $13M would have added another 4.4% to the Quarter’s revenue, and would have contributed to 2Q07’s Net Profits.
“The delayed project would have contributed more to 2Q07’s Net Profits”
However, its probably a blessing as realising of the $13M contracts would create a strong 3Q07.
1 thing to note is that gross profit margin has decreased from 21.6% to 19.2%, possibly due to the increase in product mix. Aztech has also increased development expenditure by 21% Y-o-Y and several new products are in the works. In addition, Aztech is developing products in the right direction, in the direction of networking products.
“Aztech is constantly developing new products to diversify its portfolio of products”
Aztech management, extremely optimistic of the future of Aztech, has also announced a dividend payout of $0.0075 (previously $0.005) per share, or 35% of 1H07 earnings. Aztech has always seen better result in 3Q and 4Q, and with the launch of PC-less Skype phone in Aug 07 and 3.5G adapters end FY07, and shipment of products to several large clients in USA, we should expect good prospects for Aztech.
“We should expect good results for the rest of the year”
In addition, with the recent recovery of the technology companies, Aztech could be a possible target of M&A by larger competitors, or even large purchases from the open market by large institutional investors, since more than 70% of its shares are owned by small shareholders.
“Aztech could possibly be a take over target by larger companies. They would have to pay a large premium to persuade majority acceptance as large number of shares are owned by small/private investors”
With DBS’s target for Aztech at $0.94 and Cazenove’s target at $1.02, I’m optimistic that Aztech will be one of the over-performers for the rest of this year. Short term catalysts as stated by Cazenove are new product launches, new contract wins and 3Q07 results. Aztech has always been beating analyst targets. There is no reason they would not do it this time, again.
Topics: Aztech |