On the other hand, the 145% tariffs that US is slapping on China will impact Aztech given its sizable manufacturing footprint in both China and Malaysia, is going to hurt.
Seet warns that there's significant downside risk as Aztech is unlikely to pass on all the increase in costs to its key customer.
"We believe the tariffs will hurt both its margins and demand, resulting in delays to new product launches and lower demand from its key customer," says Seet.
He has cut his FY2025 and FY2026 PATMI estimates by 23.2% and has applied a valuation multiple of 8x FY2025 earnings, leading to the lowered target price of 63 cents.
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For its most recent FY2024, Aztech declared a special dividend of 7 cents per share on top of an ordinary dividend of 8 cents, representing a payout ratio of 164% - something attainable given Aztech's strong cash generation capabilities and cash balance of $311.3 million.
Given how the fundamentals of the operating conditions have changed, Seet does not expect dividends to be sustainable if these tariffs remain or worsen.
"With the tariffs causing a potentially fundamental change along with the downside risks we mentioned above, we now believe investors are better off not accumulating more while waiting for the tariff situation to stabilise," says Seet.
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As at 10.44 am, Aztech Global shares changed hands at 74 cents, up 0.68%.
