William Tng of CGS International has turned more bullish on Aztech Global , with the view that the manufacturer will see earnings decline further for its 4QYF2024 ended Dec 2024, which will be reported later this month.
However, Tng believes that the company's customer diversification efforts, plus a pick up in orders from existing clients, will help earnings growth resume in the coming FY2026.
Aztech's share price, having dropped by around one-eighth over the past 12 months, has likely priced in the order book slowdown.
As such, Tng, in his Feb 17 note, upgraded the stock from "reduce" to "add" and raised his target price from 78 cents to 82 cents.
Citing the management, Tng says that Aztech has been engaging potential and existing customers in new product activities.
There is now a portfolio of 10 new products in the communication, consumer, health-tech and industrial segments.
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Aztech's facility in Pasir Gudang has in Sept 2024 obtained the ISO 13485 certification to manufacture electronic and plastic components and subassemblies for medical devices.
"This could help Aztech deepen engagement with customers in the health-tech and medical space, in our view," says Tng.
According to Tng, Aztech's current key customer, which accounts for 80% of 9MFY2024 revenue, may need "some time" to digest excess inventories.
As such, the company's current FY2025 will not see significant growth over FY2024, says Tng, who is projecting FY2025 earnings of $70.8 million versus $70 million reported for FY2024.
However, with prospects of potential order recovery in FY2026, Tng expects Aztech to report higher earnings of $75.3 million for that year.
His target price of 82 cents is pegged to Aztech's 4-year average P/E of 8.4x.
The company is also seen to maintain its 8 cents full-year dividend payout for the coming FY2025 and FY2026, which translates into a yield of 11.7%.
For Tng, key re-rating catalysts include potential new customer wins, winning more projects from its main customer, and a potential one-time gain if Aztech sells a currently vacated plant.
On the other hand, downside risks would include order cancellations due to economic slowdown affecting demand and volatile foreign exchange rate movements affecting its financials.
As at 11.07 am, Aztech Global shares gained 7.25% to change hands at 74 cents.
