Maybank Investment Bank Berhad
April 11, 2025
Aztech Global: Downgrade to HOLD with a Lower TP of SGD0.63
Aztech Global, a key enabler and technology hardware manufacturer for IoT, datacomm, and LED electronics products, has been downgraded to HOLD from BUY with a lower target price of SGD0.63. This downgrade is primarily due to the impact of the recent tariff hikes imposed by President Trump on China, which will likely affect Aztech’s manufacturing footprint in both China and Malaysia.
Impact of Tariffs on Aztech’s Operations
About 79% of Aztech’s revenues come from North America, its single-largest customer. The company is expected to face challenges due to the tariffs, which will likely hurt both its margins and demand. This situation may result in delays to new product launches and lower demand from its key customer.
Financial Impact and Downgrade
As a result, Maybank Research has cut its FY25/26E PATMI estimates by 23.2%. The downgrade to HOLD reflects the potential fundamental change in Aztech’s business outlook due to the tariffs.
Company Description and Statistics
52-week high/low (SGD): 1.07/0.68
3m avg turnover (USDm): 28.8
Free float (%): 0.7
Issued shares (m): 774
Market capitalization: SGD553.3M
Business Overview
Aztech Global is a technology hardware manufacturer and key enabler for customers in the consumer electronics industry. The company is leveraged to strong growth prospects from IoT end-markets through new products and customers, as well as its customers’ strong position in the market.
Value Proposition
Strong R&D and design capabilities: These are differentiating factors that can help sustain margins in the near to medium term.
Risk of commoditization: As Aztech’s margins are industry-leading and the industry is highly competitive, there is a risk of margin erosion.
IoT and Datacomm: Key Sales Drivers
The company’s growth is primarily driven by IoT and datacomm products.
Price Drivers
Historical share price trend: Aztech Global was listed on the SGX Main Board at an IPO price of SGD1.28.
1H21 results: Were in line with street expectations but management confirmed Aztech was struggling with component shortages.
2H21 results: Ahead of expectations, with a resilient order outlook.
Financial Metrics
FY21-24 PATMI CAGR: Expected to be 15%, driven by Customer A (new products and market penetration) and other new customers.
FY24E net margin: Expected to be 10.6%, lower than FY21’s 11.9% due to anticipated margin erosion.
Swing Factors
Upside:
Better-than-expected order momentum of existing products during the current IoT upcycle.
New customer/allocation wins.
Better-than-expected margins from operating leverage.
Downside:
Commoditization of consumer IoT products leading to pricing erosion.
Worsening in component shortage situation.
Inventory correction due to over-exuberance of supply chain in anticipating end-consumer demand.
ESG Considerations
Aztech Global has an established framework and internal policies but needs to improve its quantitative environmental metrics year-over-year, especially for carbon emissions.
Quantitative Parameters
Particulars Unit 2019 2020 2021
Scope 1 emissions tCO2e NA NA 68,061
Targets and Progress
Net zero carbon by 2040: Targeted
Improve energy consumption intensity by revenue: 10.00% target, 15.90% achieved
Rating System and Applicability
Maybank IBG uses a rating system:
BUY: Return expected to be above 10% in the next 12 months (including dividends)
HOLD: Return expected to be between 0% to 10% in the next 12 months (including dividends)
SELL: Return expected to be below 0% in the next 12 months (including dividends)
Historical Recommendations and Target Price
Apr 25: Buy at SGD1.1
Jul 24: Buy at SGD1.4
Nov 23: Hold at SGD0.8
Conclusion
Aztech Global faces significant challenges due to the recent tariff hikes, which are expected to impact its margins and demand. Maybank Investment Bank Berhad has downgraded the stock to HOLD with a lower target price of SGD0.63, reflecting the potential fundamental change in the company’s business outlook.
