Aztech Global Ltd: A Deep Dive Analysis

Broker Name: CGS International Securities

Date of Report: October 29, 2024

Introduction

Aztech Global Ltd recently reported its 3Q24 net profit, revealing significant declines in both revenue and profitability. This report provides a comprehensive overview of Aztech’s financial performance, the challenges it faces, and a deep dive analysis of other companies in the same industry.

Aztech Global Ltd: Financial Performance

Revenue and Profit Analysis

Aztech reported a 3Q24 net profit of S\$13.7 million, representing a 55.7% year-on-year decline and a 55.5% quarter-on-quarter drop. Revenue fell by 41.2% year-on-year and 31.8% quarter-on-quarter to S\$166.7 million. The 9M24 net profit stood at S\$60.4 million, falling short of expectations at 67% and 62% of our and Bloomberg consensus’ FY24F forecasts, respectively.

Order Book and FY25 Outlook

The order book for completion in 4Q24F is S\$142 million, the lowest level since 4Q20. Management guided for a slower 4Q24F and remains cautious about the FY25F sales outlook. The customer concentration risk is expected to exert a negative impact on Aztech’s FY25-26F net profit outlook. Given the 34.1% cut to our FY25F EPS forecast, our target price falls to S\$0.78, and we downgrade our rating on Aztech to Reduce from Add.

Balance Sheet and Cash Position

Despite the challenges, Aztech’s balance sheet remains healthy with net cash as of end-Sep 24 at S\$269.8 million. Management is looking to diversify its revenue base by pursuing new customers and possibly engaging in mergers and acquisitions (M&As) for customer acquisition.

Valuation and Dividend Yield

We value Aztech at 8.5x FY25F P/E, its four-year average, leading to a lower target price of S\$0.78. We expect net profit growth to slow to an average of 3.8% over FY25-26F, and we think Aztech could maintain its 8.0 Scts DPS over FY25-26F, which could help limit share price downside given the prospective 7.77% dividend yield.

Key Risks and Catalysts

Potential upside risks include new customer wins, winning more projects from its main customer, and a potential one-time gain if Aztech disposes of a currently vacant plant. De-rating catalysts include order cancellations due to an economic slowdown and volatile foreign exchange rate movements affecting its financials.

Peer Comparison

Let’s delve into the financial performance and outlook of other companies in the same industry.

Aurelius Technologies (ATECH M)

Aurelius Technologies, listed as ATECH M, has a current price of MYR 2.97. Unfortunately, there are no specific financial estimates or forecasts provided for this company in the report.

Benchmark Electronics (BHE US)

Benchmark Electronics, listed as BHE US, has a market cap of US\$1,631 million. The company has a P/E ratio of 20.8x for CY24F and 18.5x for CY25F. The price-to-book ratio stands at 1.47x, with a recurring ROE of 7.5% and a dividend yield of 1.5%.

Cape EMS (CEB MK)

Cape EMS, listed as CEB MK, has a current price of MYR 0.32 and a market cap of US\$73 million. The company has a P/E ratio of 8.0x for CY24F and 6.4x for CY25F, with a 3-year EPS CAGR of 7.7% and a dividend yield of 3.8%.

Celestica Inc (CLS US)

Celestica Inc, listed as CLS US, boasts a substantial market cap of US\$8,259 million. The P/E ratios for CY24F and CY25F are 18.0x and 15.6x, respectively. The company has a price-to-book ratio of 4.27x and a 3-year EPS CAGR of 36.1%.

Flextronics International (FLEX US)

Flextronics International, listed as FLEX US, has a market cap of US\$13,997 million. The company has a P/E ratio of 15.2x for CY24F and 12.8x for CY25F, with a 3-year EPS CAGR of 12.6% and a price-to-book ratio of 2.60x.

Jabil Circuit (JBL US)

Jabil Circuit, listed as JBL US, has a market cap of US\$14,082 million. The P/E ratios for CY24F and CY25F are 11.0x and 13.6x, respectively. The company has a price-to-book ratio of 8.49x, a recurring ROE of 59.5%, and a dividend yield of 0.3%.

PIE Industrial (PIE MK)

PIE Industrial, listed as PIE MK, has a market cap of US\$450 million. The company has a P/E ratio of 24.5x for CY24F and 16.7x for CY25F, with a 3-year EPS CAGR of 29.9% and a price-to-book ratio of 2.84x.

Plexus Corp (PLXS US)

Plexus Corp, listed as PLXS US, has a market cap of US\$3,902 million. The P/E ratios for CY24F and CY25F are 34.6x and 20.5x, respectively. The company’s price-to-book ratio stands at 2.89x, with a recurring ROE of 9.9%.

Sanmina-SCI Corp (SANM US)

Sanmina-SCI Corp, listed as SANM US, has a market cap of US\$3,744 million. The company has a P/E ratio of 12.9x for CY24F and 11.7x for CY25F, with a 3-year EPS CAGR of -5.4% and a price-to-book ratio of 1.64x.

SKP Resources Bhd (SKP MK)

SKP Resources Bhd, listed as SKP MK, has a market cap of US\$378 million. The company has a P/E ratio of 14.0x for CY24F and 11.7x for CY25F, with a 3-year EPS CAGR of 14.2% and a price-to-book ratio of 1.76x. It also has a dividend yield of 3.6%.

Venture Corporation (VMS SP)

Venture Corporation, listed as VMS SP, has a market cap of US\$2,932 million. The company has a P/E ratio of 14.2x for CY24F and 12.3x for CY25F, with a 3-year EPS CAGR of 7.7% and a price-to-book ratio of 1.35x. It also offers a dividend yield of 5.6%.

VS Industry Bhd (VSI MK)

VS Industry Bhd, listed as VSI MK, has a market cap of US\$853 million. The company has a P/E ratio of 17.5x for CY24F and 14.7x for CY25F, with a price-to-book ratio of 1.60x and a recurring ROE of 9.1%. It also provides a dividend yield of 2.4%.

Conclusion

Aztech Global Ltd faces significant challenges with declining revenues and profits. However, its healthy balance sheet and efforts to diversify its revenue base provide some optimism for the future. The peer comparison highlights the varied performance and prospects of other companies in the same industry, providing a broader perspective for investors.