This, CGS International (CGSI) analyst William Tng, notes, formed 59.3% of his full-year forecast, thus beating expectations.
Tng has upgraded his call on the stock to “hold” from “reduce”, at a raised target price of 60 cents from 41 cents previously.
He adds that Aztech’s 1HFY2025 revenue also beat Bloomberg’s consensus full-year forecast.
The group’s net profit of $16.08 million in the period also formed 77.6% of his and 80.4% of Bloomberg’s consensus full-year forecasts, similarly surpassing expectations .
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As at end-June, Aztech’s net cash stands at $214.5 million, with the group declaring an interim dividend per share (DPS) of once cent, equating to around a 48% payout ratio. Book value per share as at end-June was 35 cents.
Moving forward, in light of what the group’s management has labelled a “complex” global landscape with macroeconomic uncertainties and geopolitical tensions, Tng notes that Aztech will “sharpen” its business model to seize emerging opportunities.
Year to date, the group has secured 12 new product orders and added seven new customers. These new wins have been secured across the consumer, health-tech, industrial and security segments, with commercial production due to start in 2HFY2025.
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In the 2HFY2025, Aztech also expects to book a gain of $4.2 million from the sale of its Gelang Patah plant in Johor, Malaysia.
Overall, the group’s management expects the typical stronger second half seasonality to hold in the FY2025.
Tng writes: “Given the better-than-expected 2QFY2025 revenue performance, we raise our FY2025 revenue forecast by 14.8%, leading to a 64.9% increase in our FY2025 earnings per share (EPS) forecast.”
Upside risks noted by him include potential new customer wins and more projects wins from its main customer.
On the other hand, downside risks include order cancellations due to economic slowdown affecting demand, volatile foreign exchange (forex) rate movements and finally, Aztech’s over-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,” writes Tng.
Analyst Ling Lee Keng of DBS Group Research (DBS) has also been spurred by Aztech’s performance in the period.
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On the back of a stronger order book, Ling has raised her FY2025/FY2026 earnings expectations by around 100% for each financial year. She has upgraded her call to “hold” on the stock from “fully valued” previously, at a raised target price of 66 cents from 38 cents.
In the 1QFY2025, she notes that order momentum from Aztech’s key customer has “slowed”, causing net margins to “plunge way below” 10%.
“With order momentum showing improvement in 2QFY2025, we can expect net margins to move closer to the 10% level, on operating leverage,” writes Ling.
For the 2QFY2025, the DBS analyst believes the period “offers early signs of stabilisation”, but recovery “remains fragile” and “contingent” on execution.
She writes: “Given the strong surge in order momentum in 2QFY2025, we expect the group to recover from its trough orderbook in 1QFY2025, when the key customer draws down inventory. We expect a gradual improvement in orderbook on order replenishment.”
Meanwhile, analysts John Cheong and Heidi Mo of UOB Kay Hian (UOBKH) have upgraded their call on the stock to “hold” at an increased target price of 58 cents from 46 cents previously.
Cheong and Mo’s have raised their FY2025 to FY2027 revenue forecasts by around 68% to 80%, driven by stronger-than-expected results and new customers secured.
They write: “Correspondingly, our earnings estimates are revised upward by 61% to 69% for the same period.”
The UOBKH analysts’ upgrade is based on two standard deviations (s.d.) above Aztech’s long-term price-to-earnings ratio (P/E).
“Previously, we valued Aztech based on 1.1 times FY2025 price-to-book value (P/B), pegged to two standard deviations below its long-term P/B band during weaker earnings visibility. We shift our valuation methodology from P/B to P/E to better reflect Aztech’s earnings recovery trajectory,” write Cheong and Mo.
Share price catalysts noted by them include steady order wins, better-than-expected foreign exchange (forex) gain and cost management and lastly, dividend surprise.
Maybank Securities’ (Maybank) Jarick Seet, on the other hand, is less enthusiastic than his peers.
While he has raised his target price to 50 cents from 45 cents previously, unlike CGSI’s Tng and DBS’s Ling, Seet has opted to maintain his “hold” call on the stock.
He notes that he does not think Aztech’s new customer wins can “replace the lost orders” from its key customer, while the tariff situation will “also be a challenge” for its key customer, thus resulting in low demand.
For the FY2024, Aztech declared a dividend of eight cents and special dividend of seven cents, representing a payout ratio of 164% from Aztech’s strong cash generation and $311.3 million in cash. “These dividends are unlikely to be sustainable,” writes Seet.
The analyst writes: “We expect new customers to grow and replace revenue dropping off from its core customers but this will likely take some time. We also expect 2HFY2025 to be better than 1HFY2025. We do not expect revenue and profitability to recover to FY2023 levels anytime in the near future.”
As at 11.46am, shares in Aztech Global are trading 3.5 cents higher or 5.79% up at 64 cents.
