CGS International analyst William Tng has maintained his “add” call and target price of $1.21 on Aztech Global 8AZ Ltd (Aztech) after visiting the company’s plant in Pasir Gudang on Sept 26.
The company, on Nov 14, 2022, announced that it agreed to purchase a 300,000 sq ft plant in Pasir Gudang, Johor, Malaysia for RM66.8 million ($20 million at the time). According to Tng, the facility began full scale operations in 3Q2023.
In his report dated Oct 4, Tng notes that the plant can undertake complete product builds for customers and is capable of plastic injection moulding, printed circuit board assembly and product assembly, among others. This plant has also achieved the ISO 13485:2016 certification, enabling Aztech to manufacture medical devices, he adds.
Tng is of the opinion that the forecasted average utilisation rate for this plant in 3QFY2024 is likely to be around 50% and there is potential for Aztech to pursue more orders to reach its full capacity.
In a presentation by Aztech, it was noted that three products from the health, tech and consumer segments have successfully entered commercial production and five new products in the communication, consumer and health tech segments are scheduled to achieve commercial production by the end of FY2024.
Aztech owns an existing 86,000 sq ft freehold plant in Gelang Patah. Tng predicts that Aztech may rent out the existing plant, sell the plant if there is a suitable offer or develop a new major customer and dedicate that plant to that customer.
Tng shares some downside risks include order cancellations due to a global economic slowdown affecting demand and volatile foreign exchange rate movements affecting its financials.
“During 3Q2024, the US dollar (USD) depreciated 5.24% against the Singapore dollar (SGD) and 3.42% against the renminbi (RMB), which we believe is likely to lead to foreign exchange losses in the company’s financial performance for the quarter. A slowing order book is also a potential concern,” Tng adds.
Despite this, Tng believes that Aztech could maintain its 8 cents dividend per share (DPS) over FY2024 to FY2026 forecast, providing investors with a potential 7.84% dividend yield, while Tng expects earnings per share to grow at an average of 14.2% over FY2025 to FY2026 forecast.
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Tng’s target price is based on the FY2025 forecasted price over earnings ratio (P/E) of 8.7 times, its three-year average.
As at 3.51pm, units in Aztech are trading at 1 cent higher or 0.98% up at $1.03.
