CGS International
April 16, 2025
Aztech Global Ltd. Downgraded: A Deep Dive into Dismal Performance and Bleak Outlook
Introduction
Aztech Global Ltd. faces a grim forecast as its recent performance significantly underperformed expectations. This analysis delves into the factors leading to a downgrade from Hold to Reduce, providing a comprehensive overview of the company’s financial health, strategic challenges, and future prospects.
1Q25 Performance: A Dismal Start
- Revenue: S\$42m, a stark decrease of 49% quarter-over-quarter (qoq) and 67% year-over-year (yoy). This figure represents only 8% of full-year forecasts. [[1]]
- Net Profit: S\$1.5m, reflecting decreases of 85% qoq and 91% yoy, accounting for just 3% of the expected full-year results. [[1]]
These results prompted a revision of EPS forecasts for FY25-27F due to weakened customer demand, leading to the downgrade with a target price (TP) of S\$0.41. [[1]]
Missed Expectations Post FY24 Results
Despite prior reductions of 17-20% in FY25-26F revenue and 18-25% in net profit after the FY24 results, the 1Q25 figures were disappointing. The revenue and net profit fell short due to reduced customer demand. As of March 2025, the net cash per share stood at S\$0.41 (with total net cash of S\$315.7m), and the book value per share was S\$0.44. [[1]]
Challenging FY25 Outlook
Aztech has not provided order book guidance in its 1Q25 business update. However, the company is focusing on its Malaysia facility to mitigate supply chain risks from geopolitical and tariff uncertainties. A new automated production line in Malaysia, expected to be commissioned in 2Q25F, should enhance productivity and product quality. In 1Q25, Aztech gained five new customers across consumer, health-tech, and industrial sectors, with commercial production slated for 2H25F. [[2]]
Downgrade Rationale
The addition of five new customers in 1Q25 is unlikely to offset the current revenue decline. Escalating US-China trade tensions could further weaken the revenue outlook for FY25-27F. Consequently, revenue forecasts have been reduced by 41.6-42.9%, leading to a 33.6-60.8% decrease in EPS forecasts. [[2]]
The valuation basis remains at a 4-year average P/E of 8.4x, applied to the lowered FY26F EPS forecast, which drives the TP down to S\$0.41. The recommendation is downgraded from Hold to Reduce due to the uncertain EPS outlook. A prudent approach might lead Aztech to assume a 30% payout ratio, diminishing the dividend yield appeal (1.1-2.2% yield over FY25-27F). [[3]]
Potential Risks and Catalysts
- Upside Risks: New customer acquisitions, increased projects from the primary customer, and potential gains from disposing of a vacated plant. [[3]]
- De-rating Catalysts: Order cancellations from economic slowdowns and volatile foreign exchange rate movements. [[3]]
- Key Risk: High dependence on a key customer (80.0% of FY24 revenue). Any further drop in orders from this customer could significantly impact net profits. [[3]]
Key Changes and Financials
- FY25F EPS reduced by 60.8%. [[4]]
- FY26F EPS reduced by 38.4%. [[4]]
- FY27F EPS reduced by 33.6%. [[4]]
Financial Summary: [[4]]
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue |
896.3 |
621.6 |
312.6 |
351.4 |
369.0 |
| Net Profit |
100.0 |
70.5 |
20.7 |
37.9 |
42.0 |
| Normalised EPS (S\$) |
0.13 |
0.09 |
0.03 |
0.05 |
0.05 |
| Normalised EPS Growth |
48.9% |
(29.5%) |
(70.6%) |
82.9% |
10.7% |
| FD Normalised P/E (x) |
5.63 |
7.99 |
27.17 |
14.86 |
13.42 |
| Price To Sales (x) |
0.63 |
0.91 |
1.80 |
1.60 |
1.53 |
| DPS (S\$) |
0.08 |
0.15 |
0.01 |
0.01 |
0.02 |
| Dividend Yield |
11.0% |
20.5% |
1.1% |
2.0% |
2.2% |
Peer Comparison and Market Data
- Current Price: S\$0.73 [[4]]
- Target Price: S\$0.41 [[4]]
- Previous Target: S\$0.67 [[4]]
- Up/downside: -43.8% [[4]]
- CGSI / Consensus: -33.6% [[4]]
- Market cap: US\$428.0m, S\$563.4m [[4]]
- Average daily turnover: US\$0.75m, S\$1.00m [[4]]
- Current shares o/s: 772.0m [[4]]
- Free float: 29.7% [[4]]
*Consensus ratings: Buy 0 Hold 3 Sell 1 [[3]]
Analyst Information
- Analyst: William TNG, CFA [[4]]
- T (65) 6210 8676 [[4]]
- E william.tng@cgsi.com [[4]]
Results Summary
| FYE Dec (S\$m) |
1Q25 |
1Q24 |
yoy chg |
4Q24 |
qoq chg |
Comments |
| Revenue |
42.0 |
128.6 |
-67.3% |
81.7 |
-48.6% |
1Q25 revenue at 8% of our/Bloomberg consensus full-year forecast was below expectation as revenue fell 67.3% yoy due to a sharp decrease in orders from customers. [[2]] |
| EBITDA |
4.1 |
21.5 |
-80.9% |
13.2 |
-68.9% |
|
| EBITDA margin |
9.8% |
16.7% |
-6.9% pts |
16.2% |
-6.4% pts |
|
| Profit before tax |
1.8 |
18.9 |
-90.5% |
10.7 |
-83.2% |
|
| PBT margin |
4.3% |
14.7% |
-10.4% pts |
13.1% |
-8.8% pts |
|
| Tax |
(0.3) |
(3.0) |
-90.0% |
(0.6) |
-50.0% |
|
| Tax rate |
16.7% |
15.9% |
+0.8% pts |
5.6% |
+11.1% pts |
|
| Net profit |
1.5 |
15.9 |
-90.6% |
10.1 |
-85.1% |
1Q25 net profit was 3% of our/Bloomberg consensus full-year forecast, below expectation due to the large revenue miss. [[2]] |
| Net profit margin |
3.6% |
12.4% |
-8.8% pts |
12.4% |
+0.7% pts |
|
| EPS (Scts) |
0.20 |
2.06 |
-90.3% |
1.32 |
-84.8% |
|
Earnings Revisions
| (S\$m) |
FY25F |
FY26F |
FY27F |
FY25F |
FY26F |
FY27F |
FY25F |
FY26F |
FY27F |
|
Old |
Old |
Old |
New |
New |
New |
Change |
Change |
Change |
| Revenue |
547.578 |
602.161 |
632.269 |
312.628 |
351.446 |
369.018 |
-42.91% |
-41.64% |
-41.64% |
| Gross profit |
120.467 |
132.475 |
139.099 |
68.778 |
77.318 |
81.184 |
-42.91% |
-41.64% |
-41.64% |
| Operating expenses |
(64.576) |
(64.823) |
(69.406) |
(50.784) |
(37.535) |
(36.508) |
-21.36% |
-42.10% |
-47.40% |
| Net profit |
52.945 |
61.610 |
63.234 |
20.733 |
37.921 |
41.970 |
-60.84% |
-38.45% |
-33.63% |
| EPS (Scts) |
0.0686 |
0.0798 |
0.0819 |
0.0269 |
0.0491 |
0.0544 |
-60.84% |
-38.45% |
-33.63% |
Peer Comparison
| Company |
Bloomberg Ticker |
Recom. |
Price (lcl curr) |
Target Price (lcl curr) |
Market Cap (US\$ m) |
P/E (x) CY25F |
P/E (x) CY26F |
3-year EPS CAGR (%) |
P/BV (x) CY25F |
Recurring ROE (%) CY25F |
Dividend Yield (%) CY25F |
| Aztech Global Ltd |
AZTECH SP |
Reduce |
0.73 |
0.41 |
428 |
27.2 |
14.9 |
-15.5% |
1.59 |
5.9% |
1.1% |
| Aurelius Technologies |
ATECH M |
NR |
2.72 |
NA |
292 |
15.5 |
15.1 |
14.4% |
na |
13.8% |
3.2% |
| Benchmark Electronics |
BHE US |
NR |
35.23 |
NA |
1,287 |
14.7 |
13.0 |
na |
1.13 |
7.8% |
na |
| Cape EMS |
CEB MK |
NR |
0.23 |
NA |
53 |
na |
na |
na |
na |
na |
na |
| Celestica Inc |
CLS US |
NR |
79.13 |
NA |
9,371 |
16.3 |
13.4 |
24.9% |
4.23 |
25.1% |
na |
| Flextronics International |
FLEX US |
NR |
29.59 |
NA |
11,742 |
10.6 |
9.2 |
-31.5% |
2.31 |
22.9% |
na |
| Jabil Circuit |
JBL US |
NR |
131.9 |
NA |
14,369 |
13.8 |
12.2 |
-9.0% |
10.19 |
65.8% |
0.2% |
| Nationgate |
NATGATE |
NR |
1.23 |
NA |
624 |
13.1 |
11.6 |
16.7% |
2.34 |
20.9% |
2.1% |
| PIE Industrial |
PIE MK |
NR |
3.38 |
NA |
318 |
14.5 |
11.8 |
31.7% |
1.91 |
12.6% |
1.5% |
| Plexus Corp |
PLXS US |
NR |
119.4 |
NA |
3,279 |
17.2 |
15.3 |
11.4% |
2.25 |
13.9% |
na |
| Sanmina-SCI Corp |
SANM US |
NR |
75.95 |
NA |
4,118 |
13.1 |
na |
na |
1.74 |
14.2% |
na |
| SKP Resources Bhd |
SKP MK |
Add |
0.76 |
1.35 |
283 |
8.8 |
7.6 |
na |
1.23 |
14.5% |
5.7% |
| Venture Corporation |
VMS SP |
Hold |
10.84 |
10.13 |
2,369 |
14.2 |
12.9 |
0.7% |
1.08 |
7.6% |
6.9% |
| VS Industry Bhd |
VSI MK |
Add |
0.76 |
1.03 |
658 |
13.3 |
8.9 |
na |
1.20 |
9.2% |
3.4% |
| Simple average excluding Aztech |
|
|
|
|
|
13.8 |
11.9 |
-0.7% |
2.69 |
19.5% |
3.3% |
ESG Considerations
Aztech adheres to supply chain standards promoting inclusiveness, human rights, workplace safety, environmental protection, and ethical behavior. [[4]]
Key ESG Factors
- China Factory: Located in Dongguan, Aztech’s production facility leases land from the Guangdong provincial government. [[4]]
- Certificates and Permits: Aztech has not obtained necessary certificates and permits from the state government, potentially disrupting operations. However, a certification extends the lease for the land in Dongguan until March 2025. [[4]]
- Environmental Risks: Manufacturing operations are subject to environmental risks, requiring compliance with environmental and workplace safety regulations. No environmental hazards were reported in China during FY17-22. [[4]]
- Resource Efficiency: Aztech focuses on efficient resource use, converting air conditioners to energy-efficient systems and exploring solar energy deployment. [[4]]
Detailed Financial Analysis
This section provides a deeper look into Aztech’s financial health, covering key ratios, cash flow, and balance sheet analysis.
P/BV vs ROE
Analysis of Price-to-Book Value (P/BV) against Return on Equity (ROE) provides insights into valuation relative to profitability.
12-Month Forward FD Normalised P/E vs FD Normalised EPS Growth
Examines the relationship between forward-looking Price-to-Earnings (P/E) ratio and Fully Diluted (FD) Normalized Earnings Per Share (EPS) growth.
Profit & Loss Analysis
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Net Revenues |
896.3 |
621.6 |
312.6 |
351.4 |
369.0 |
| Gross Profit |
211.9 |
141.6 |
79.1 |
88.6 |
93.5 |
| Operating EBITDA |
126.1 |
81.7 |
28.3 |
51.1 |
57.0 |
| Depreciation And Amortisation |
(8.7) |
(9.3) |
(10.3) |
(11.3) |
(12.3) |
| Operating EBIT |
117.3 |
72.4 |
18.0 |
39.8 |
44.7 |
| Financial Income/(Expense) |
6.4 |
8.7 |
6.4 |
4.8 |
4.7 |
| Pretax Income/(Loss) from Assoc. |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Non-Operating Income/(Expense) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Profit Before Tax (pre-EI) |
123.7 |
81.1 |
24.4 |
44.6 |
49.4 |
| Taxation |
(23.7) |
(10.5) |
(3.7) |
(6.7) |
(7.4) |
| Profit After Tax |
100.0 |
70.5 |
20.7 |
37.9 |
42.0 |
| Net Profit |
100.0 |
70.5 |
20.7 |
37.9 |
42.0 |
| Recurring Net Profit |
100.0 |
70.5 |
20.7 |
37.9 |
42.0 |
| Fully Diluted Recurring Net Profit |
100.0 |
70.5 |
20.7 |
37.9 |
42.0 |
| Normalised Net Profit |
100.0 |
70.5 |
20.7 |
37.9 |
42.0 |
| Fully Diluted Normalised Profit |
100.0 |
70.5 |
20.7 |
37.9 |
42.0 |
Cash Flow Analysis
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| EBITDA |
126.1 |
81.7 |
28.3 |
51.1 |
57.0 |
| Change In Working Capital |
(42.5) |
59.4 |
(0.4) |
(5.3) |
(2.4) |
| Net Interest (Paid)/Received |
(1.1) |
(0.9) |
(1.3) |
(1.3) |
(1.3) |
| Tax Paid |
(14.2) |
(15.6) |
(3.7) |
(6.7) |
(7.4) |
| Cashflow From Operations |
68.3 |
124.5 |
22.9 |
37.7 |
45.9 |
| Capex |
(4.3) |
(3.4) |
(15.0) |
(15.0) |
(15.0) |
| Other Investing Cashflow |
(2.0) |
32.4 |
7.7 |
6.1 |
6.0 |
| Cash Flow From Investing |
(6.2) |
29.1 |
(7.3) |
(8.9) |
(9.0) |
| Debt Raised/(repaid) |
(8.7) |
(5.7) |
0.0 |
0.0 |
0.0 |
| Dividends Paid |
(34.7) |
(77.2) |
(6.2) |
(11.4) |
(12.6) |
| Cash Flow From Financing |
(43.5) |
(82.9) |
(6.2) |
(11.4) |
(12.6) |
| Total Cash Generated |
18.6 |
70.6 |
9.4 |
17.5 |
24.3 |
| Free Cashflow To Equity |
53.3 |
147.8 |
15.6 |
28.9 |
36.9 |
| Free Cashflow To Firm |
63.2 |
154.5 |
16.9 |
30.2 |
38.2 |
Balance Sheet Analysis
| (S\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Cash And Equivalents |
231.4 |
292.1 |
302.7 |
320.2 |
344.5 |
| Total Debtors |
200.7 |
81.8 |
77.1 |
86.7 |
91.0 |
| Inventories |
73.9 |
32.4 |
25.6 |
28.8 |
30.2 |
| Total Other Current Assets |
45.4 |
24.1 |
24.1 |
24.1 |
24.1 |
| Total Current Assets |
551.5 |
430.4 |
429.5 |
459.8 |
489.8 |
| Fixed Assets |
44.8 |
39.6 |
44.3 |
48.1 |
50.8 |
| Total Investments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Intangible Assets |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Total Other Non-Current Assets |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Total Non-current Assets |
44.8 |
39.6 |
44.3 |
48.1 |
50.8 |
| Short-term Debt |
3.5 |
3.4 |
3.4 |
3.4 |
3.4 |
| Total Creditors |
173.7 |
71.8 |
60.0 |
67.4 |
70.8 |
| Other Current Liabilities |
49.9 |
42.0 |
42.0 |
42.0 |
42.0 |
| Total Current Liabilities |
227.2 |
117.2 |
105.4 |
112.8 |
116.2 |
| Total Long-term Debt |
13.8 |
10.9 |
10.9 |
10.9 |
10.9 |
| Total Other Non-Current Liabilities |
11.4 |
4.0 |
4.0 |
4.0 |
4.0 |
| Total Non-current Liabilities |
25.1 |
14.9 |
14.9 |
14.9 |
14.9 |
| Total Provisions |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Total Liabilities |
252.3 |
132.1 |
120.2 |
127.7 |
131.0 |
| Shareholders’ Equity |
344.9 |
339.1 |
353.6 |
380.2 |
409.5 |
| Total Equity |
344.9 |
339.1 |
353.6 |
380.2 |
409.5 |
Key Ratios
| Key Ratios |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue Growth |
9.3% |
(30.6%) |
(49.7%) |
12.4% |
5.0% |
| Operating EBITDA Growth |
42.9% |
(35.2%) |
(65.4%) |
80.6% |
11.5% |
| Operating EBITDA Margin |
14.1% |
13.1% |
9.0% |
14.5% |
15.4% |
| Net Cash Per Share (S\$) |
0.28 |
0.36 |
0.37 |
0.40 |
0.43 |
| BVPS (S\$) |
0.45 |
0.44 |
0.46 |
0.49 |
0.53 |
| Gross Interest Cover |
108.9 |
76.4 |
13.8 |
30.6 |
34.4 |
| Effective Tax Rate |
19.2% |
13.0% |
15.0% |
15.0% |
15.0% |
| Net Dividend Payout Ratio |
62% |
164% |
30% |
30% |
30% |
| Accounts Receivables Days |
81.10 |
83.19 |
92.77 |
85.03 |
87.86 |
| Inventory Days |
42.44 |
40.52 |
45.28 |
37.77 |
39.08 |
| Accounts Payables Days |
95.8 |
93.6 |
103.0 |
88.4 |
91.5 |
| ROIC (%) |
156% |
51% |
28% |
58% |
57% |
| ROCE (%) |
38.3% |
22.9% |
7.1% |
12.0% |
12.4% |
| Return On Average Assets |
16.5% |
11.6% |
3.0% |
6.7% |
7.1% |
Key Drivers
| Key Drivers |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| IoT devices and Datacom products (% yoy) |
10.1% |
-29.9% |
-50.0% |
12.5% |
5.0% |
| LED products (% yoy) |
-25.9% |
-70.0% |
5.0% |
5.0% |
5.0% |
