Aztech Global has reported lower earnings as expected but the company is trying to make up for it with special dividends.
However, given near term uncertainties over the company’s order wins, CGS International and DBS Group Research analysts have trimmed their target prices for this stock while keeping their “hold” or equivalent calls. Maybank Securities, on the other hand, has upgraded the stock to “buy”.
For its FY2024 ended Dec 31 2024, Aztech Global reported earnings of $70.5 million, down 29.5% y-o-y on the back of a 30.6% y-o-y drop in revenue to $621.6 million.
According to William Tng of CGS International, Aztech’s management tried to manage the revenue drop by cutting employee benefits. In addition, higher interest income, write-back of bad debt and fair value gain on derivative financial instruments helped improve the bottom line as well.
Tng points out that Aztech has flagged “demand volatility” from customers amid rising trade restrictions, geopolitical tensions and global economic uncertainties. “Aztech did not provide an order book guidance for FY2025, which we believe is due to the normalising of order lead time.”
Tng acknowledges that he had been “too bullish” on Aztech’s pace of order book recovery.
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As such, Tng has cut his revenue projection for FY2025 by 17% and FY2026 by 20%, leading to 18% to 25% reductions respectively for his earnings estimates.
As a result, he has downgraded his call from “add” to “hold” along with a reduced target price from 82 cents to 67 cents, but adds that the stock would still be supported by decent dividend returns in the interim. Besides a final dividend of 3 cents per share, Aztech plans to pay a special dividend of 7 cents as well.
Tng sees possible upside from potential new customer wins and winning more projects from its main customer, and a potential one-time gain if Aztech disposes of a vacated plant.
Conversely, downside risks include order cancellations due to economic slowdown affecting demand, and volatile foreign exchange rate movements affecting its financials. “A key risk is Aztech’s dependence on its key customer: if orders from this key customer do not recover or drop further, this could significantly hurt Aztech’s net profits,” warns Tng.
On the other hand, Maybank Securities analyst Jarrick Seet has upgraded his call to “buy” from “hold”, along with a higher target price of 82 cents from 78 cents.
According to Seet, the new customers will help Aztech reduce its reliance on its key customer. “As a result, we believe they are in a transition phase to grow their customer and product base.”
Following the coming special dividend payout, Seet expects dividend for the current FY2025 to decline, but still offer an “attractive” yield of 9.8%, with any excess likely to continue to be distributed to shareholders, resulting in further dividend upside potential.
Ling Lee Keng, on her part, maintains her “fully valued” call but with a lowered target price of 52 cents from 63 cents, as she pencils in slowing orders from Aztech’s key customer which will hurt future earnings.
