Broker: Maybank Research Pte Ltd
Date of Report: July 23, 2025

Aztech Global: Navigating a Challenging Year with New Customers, Improved Outlook, and ESG Commitment

Aztech Global’s 2Q25 Performance: Signs of Recovery Amid Headwinds

Aztech Global (SGX: AZTECH SP), a key technology hardware manufacturer in the IoT, datacomm, and LED electronics space, reported a notable improvement in its 2Q25 results. The company posted a revenue of SGD 143.4 million and a net profit after tax (NPAT) of SGD 14.8 million, marking a significant rebound from a lackluster 1Q25 and aligning with analyst expectations.
Key highlights for 2Q25:

• Secured 12 new products and added 7 new customers.
• New product lines to start production in 2H25, particularly in consumer, health-tech, and industrial/security segments.
• Operational efficiencies boosted by the right-sizing of Malaysian factories and the launch of an automated production line.

Despite these advances, Aztech’s revenue for the quarter was down 41% year-on-year, primarily due to lower orders from its largest customer. While new customer wins are promising, they are unlikely to fully offset the volume lost from the core client in the near term. Ongoing tariff challenges for its key customer remain a significant headwind.

Share Price, Valuation, and Dividend Outlook

Aztech’s share price stood at SGD 0.61 as of the report date. The 12-month price target was revised upwards to SGD 0.50 (from SGD 0.45), reflecting a more optimistic view based on new customer and product wins, and a higher target PE multiple of 11.2x FY25E earnings.

Aztech declared a final ordinary dividend of SGD 0.08 per share and a special dividend of SGD 0.07 per share for FY24, resulting in an exceptionally high payout ratio of 164%, supported by strong cash generation and a cash pile of SGD 311.3 million. However, these dividends are not expected to be sustainable. For 1H25, a reduced interim dividend of SGD 0.01 per share was announced.

Financial Performance and Forecast

Historical and Projected Financials (SGD millions):

Key Observations:

• Revenue for FY25E is projected to be less than a third of FY23A levels, underscoring the magnitude of the slowdown from key customer orders.
• Profitability metrics and returns on equity and assets are expected to bottom out in FY25E before recovering modestly in FY26E and FY27E.
• Dividend payouts are forecast to normalize at approximately 70% payout ratio after FY24’s extraordinary payout.

Business Model and Industry Dynamics

Aztech positions itself as a premier technology hardware manufacturer, enabling customers across consumer electronics, IoT, and datacomm sectors. The company leverages:

• Strong R&D and design capabilities for sustained margins.
• Industry-leading execution and efficiency, particularly with recent factory upgrades.

Industry Risks:

• Commoditization and pricing erosion remain a threat, especially in the consumer IoT segment.
• Component shortages and inventory corrections could impact future growth.
• Ongoing challenges with customer concentration and tariffs affecting its largest customer.

Growth Prospects and Strategic Initiatives

Aztech is proactively addressing revenue declines from its core client by:

• Expanding its customer base and product portfolio with 12 new product wins and 7 new customer additions in 2Q25.
• Commercializing new products in the consumer, health-tech, and industrial/security verticals from 2H25 onwards.
• Implementing automation and operational right-sizing at its Malaysian facility for improved efficiency and cost control.

While these measures are expected to support a better performance in 2H25 compared to 1H25, management does not anticipate a full recovery to FY23 revenue and profit levels in the near future.

Environmental, Social, and Governance (ESG) Performance

ESG Framework and Policies:

• Aztech has an established ESG framework, with a sustainability committee reporting quarterly to the Board.
• Joined the initiative to achieve net-zero carbon emissions by 2040 and has set tangible medium and long-term targets.
• Focus on energy efficiency, such as recycling heat energy from air-conditioners at its Dongguan dormitories and switching to inverter systems.
• Centralized septic and sewage control systems at its Johor facility to mitigate wastewater discharge impact.
• ESG score of 55 (above average), indicating solid policies but room for improvement in quantitative environmental metrics, especially carbon emissions.

Key ESG Metrics:

Other notable ESG actions:

• Zero fines or significant incidents related to environmental non-compliance, discrimination, whistleblowing, bribery, or corruption in 2021.
• Total training hours for FY21: 13,855, averaging 12 hours per employee.
• Work injury rate reduced from 0.18 per 100 workers in FY20 to 0.078 per 100 workers in FY21.

Balance Sheet, Cash Flow and Key Ratios

Aztech maintains a robust balance sheet with a strong net cash position and prudent management of working capital.

• Cash & Short-Term Investments (FY25E): SGD 310.0 million
• Net gearing remains at net cash throughout the forecast period.
• Free cash flow yield is expected to moderate from 22.6% in FY24A to 5.9% in FY25E, reflecting lower profitability.

Key Ratios (FY25E):

• P/E: 13.6x
• P/BV: 1.3x
• Net dividend yield: 5.1%
• ROAE: 10.0%
• EBITDA margin: 13.3%
• Cash conversion cycle: 44.4 days
• Current ratio: 4.1x

Risks and Opportunities

Upside Catalysts:

• Stronger-than-expected recovery in order momentum, especially in IoT upcycle.
• Further new customer or product wins.
• Higher-than-expected operating leverage and margin expansion.

Downside Risks:

• Continued commoditization and price pressure in consumer IoT.
• Worsening of component shortages or excessive inventory build-up.
• Extended weakness in demand from key customers, especially if tariff issues persist.

Conclusion: Cautious Optimism with a HOLD Stance

Aztech Global faces a challenging near-term outlook as it manages the fallout from a sharp decline in orders from its largest customer. Management is actively executing on diversification strategies with new customers and products, which are expected to improve the trajectory in 2H25 and beyond. However, a full recovery to previous revenue and profit highs is not expected in the near term. While the company continues to generate strong cash flow and maintains an above-average ESG profile, dividend payouts are likely to normalize from the current elevated levels.
Maybank Research maintains a HOLD rating on Aztech Global, with a revised target price of SGD 0.50, reflecting a balanced view of recovery efforts, operational stability, and ongoing market headwinds.