Aztech Global

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[weijian]

Name: Aztech Global
IPO Share Price: S$1.28

Public Offering: 3,500,000
Placement Offering: 64,620,000
Total Offering: 68,120,000

Gross Proceeds Raised: $283.7 million
Share capital: 773,72 million
Market Capitalisation: $990.4 million

Closing Date: 10 Mar 12pm
Trading on 'ready basis': 12 Mar 9am

Prospectus and Product Highlight Sheet: HERE

Just looked at the movement of the money before/during IPO:

- New money raised with new shares ~190mil
- Proceeds to controlling shareholder by selling existing shares ~ 95mil

- Capital reduction before IPO ~ 53mil
- Dividends declared before IPO ~ 67mil
- Total money emptied from company before IPO = 53mil + 67mil ~ 120mil (or 60% of IPO proceeds)
- Total proceeds received by controlling shareholder = selling existing shares + money emptied from company before IPO = 95 + 120 = 210mil, which is an amount that exceed the 190mil new money raised from institutions by selling new shares.

I reckon the investment bankers paid by the Mun family had been really valued for money.

[weijian]

These guys have given a 5cent interim dividend (80% payout ratio based on 1H24 NP) and together with the final dividend of 5cents for FY23, the LTM dividend payout suggest that this guys are willing to share. The last time they gave out 5cents was right after IPO (2021), probably to reward some buddies who signed up for the IPO?

A new generation with new alignment and view, as a VB previously suggested?

Another noticeable thing about Aztech Global would be its new Pasir Gudang mfg base. Across the straits, there are plenty of contract mfg-ers whom have flew into space taking advantage of the FX differential (sales in USD and cost in RM). Completed CAPEX and lower operating costs bode well for shareholders if future business orders hold up.

Aztech Global H1 net profit up 8.7% to S$46.7 million

Revenue for H1 fell 4 per cent to S$373.2 million from S$388.6 million the year before, the Internet of Things (IoT) devices and data communications product manufacturer reported on Tuesday (Jul 30).

Earnings per share stood at 6.04 Singapore cents, up from 5.56 cents the previous year.

For the half year, an interim dividend of five Singapore cents per share was declared.

https://www.businesstimes.com.sg/compani...-7-million

[smallcaps]

Aztech start buyback, 150k shares today at 92 to 94 cents:

https://links.sgx.com/1.0.0/corporate-an...7725fd6e2d

[weijian]

It is probably apt for another review on Aztech Global via "asset-business-structure" format:

Asset
- About 6% gearing. The balance sheet consists of Cash-65%, Working capital-20%, PPE (includes ROU)-15%, financial assets (T-bills)-10% --> Total adds up to 110% equity, balanced by 6% gearing + 4% other liabilities (deferred tax/lease liabilities)

- Inventory turnover~60days, receivables~85days and payables~110days --> CCC=35days. Its poor suppliers get paid later than Aztech Global gets paid. Their trade receivables and payables roughly cancel out in absolute terms and working  capital consists of mainly inventories.

- The PPE (includes ROU) looks abnormally low on the BS - which may partially explain the good ROA/ROE (13% and 25% respectively). ROIC is even higher as half of the 198mil cash from IPO remains un-used.


Business
- A contract manufacturer who pivoted from LED lighting (low margin) to LoT (higher margin) at around 2018, just right after it delisted itself and a few years before it relisted. Before LED lighting in the 2010s, it had done multiple product transitions over its 30year existence.

- Hit jackpot with a marquee customer, Blink Home which was acquired by Amazon in Dec2017. P/L has been on a 1-way up since 2018. The top2 customers make up 90% of revenue.

- A comparison between FY19 and FY23's P/L statement --> (1) GPM have reduced ~400bps but because of a doubling of revenue spread out over "fixed" SGA costs that didn't increase as much, NPM stayed constant at ~11%. (2) The reduction of GPM seem to suggest that Blink Home's security cameras are towards the end of their life cycle.

- With an order book that is much lower compared to the peak in 2021-2022, not hard to guess where the future holds unless another product comes up (and sells well). 1H24's customer deposits +50% from 20.5mil (end FY23) to 33mil, so maybe something good may happen soon.


Structure
- Muns own ~70% of the company. They have encashed slightly more than 200mil, which is more than the 198mil gross proceeds they raised in the IPO --> meaning that they are now playing with "house money".

- Muns have demonstrated good alignment with OPMIs, in terms of salary and dividends: For FY23, Muns received ~4mil salaries but gotten 43mil in dividends. 1H24's 5cents/share dividend suggest that they are starting to drain the IPO coffers? OPMIs love it, I would say.

- Very capable and young ID Mr Huang on the BOD and I am sure that his dad on the previous Aztech Group as an ID as well, is a total coincidence. The (ex) ID Mr Low from LHT Holdings could learn a trick or two from Huang Senior.

[specuvestor]

I'm biased on the Structure side that interests is aligned cause I still remember the bulk and pork

Had always been a tech company with last great product of "LAN plugs"(?) before going into dry bulk shipping and roast pork... maybe a way of depressing stock price

[weijian]

The 4 most dangerous words in investing is "This time is different".
The 12 most dangerous words in investing is "The 4 most dangerous words in investing is "This time is different"."

I will try to let facts change my biases, then fit facts into opinions through my biases. The same folks (old generation) who were fighting the last crisis missed the next boom. At the same time, the same folks (new generation) who didn't fight the last crisis got sunk in the next. Both ways have their pros and cons, and so it takes real wisdom to know when to do what according to our temperament and context. IMHO, that is multi-generational thinking!

Now back to Aztech Global.

As we can see from the notes under "Structure", the record is a "mixed bag". Waters have to be muddy, too clear and (risk) premiums will not be available.

Contract Manufacturers generally fly (or crash) with their customers. The more concentrated and/or the more marque the customer is, the higher they fly (or crash).

As for getting his hands dirty/wet with dry bulkers and roasted pork, maybe OPMIs should give Chairman/CEO/Founder Mun the benefit of the doubt? After all, he has a history of pivoting between products and customers successfully. When you are successful, you believe your own brilliance can be applied horizontally. At least, the last dance from Philips/OSRAM's LED to Amazon Blink Home's security cameras, looked like a masterstroke for him, and he looks willing to share.

[weijian]

Another noticeable thing about Aztech Global would be its new Pasir Gudang mfg base. Across the straits, there are plenty of contract mfg-ers whom have flew into space taking advantage of the FX differential (sales in USD and cost in RM). Completed CAPEX and lower operating costs bode well for shareholders if future business orders hold up.

Aztech Global H1 net profit up 8.7% to S$46.7 million

Revenue for H1 fell 4 per cent to S$373.2 million from S$388.6 million the year before, the Internet of Things (IoT) devices and data communications product manufacturer reported on Tuesday (Jul 30).

Earnings per share stood at 6.04 Singapore cents, up from 5.56 cents the previous year.

For the half year, an interim dividend of five Singapore cents per share was declared.

https://www.businesstimes.com.sg/compani...-7-million

Order book has halved from 3 months ago, and at its lowest since IPO. From Mgt talk, I suppose Blink Home's security cameras are at the end of its life cycle OR Aztech Global's supplier status has been de-prioritized.

The order book trend and guidance suggest that it probably wouldn't be able to "enjoy" its lower cost base.

Date Order book (mil)

Oct-24 142
Jul-24 304
Apr-24 456
Feb-24 334
Oct-23 323
Jul-23 595
Feb-23 718
Nov-22 820
Jul-22 827
Feb-22 762
Jun-21 530
Mar-21 500
Dec-20 270

AZTECH GLOBAL REPORTS 9M 2024 REVENUE OF $539.9 MILLION

As of 1 October 2024, the Group secured an order book totalling $142 million. Majority of the orders are scheduled for completion in the current financial year. With lower order book, the Group expects a slower 4Q 2024. The Group will continue with stringent cost management.

The Group will focus on enhancing its design and manufacturing capabilities. It will also increase and diversify its customer base, including exploring M&A opportunities to expand its business.

[ghchua]

Hi weijian,

This case study highlighted the risk of buying a stock at above book value. Though cash flow, balance sheet and order book looks healthy coupled with decent dividends, the fact is that the market had priced in too much future earnings. When it disappointed, one can suffer huge capital losses due to adjustment of market expectations. Even at current price after correction, it is still trading at above book value.

Personally, I do not like order book based businesses, unless they are trading at below book value. I prefer to, as you have said - buy/sell (perpetually) undervalued assets.

You have said at another topic here - burning our brains on profit taking fair/overvalued assets is a much more "good problem to have". Now you have to "burn" your brains again on whether to buy overvalued assets at a lower order book level or cut losses if you are still holding it.

[weijian]

hi ghchua,

Similarly, I do not like order book based businesses. But I know that I am holding onto a dogma (ie, order book based businesses are not good investments or companies). I am working on "burning my brain" to see how I can reject this dogma that I am holding on.

Unless the company is "at play"- M&A, asset sales or company liquidation, I don't really look at book value anymore. Generally, I make guestimates based on liquidation value instead. I have done enough overturning of stones, to finally conclude that whenever a company trades at <NAV, its ROIC is surely too low for me to be interested to dwell further. But does it mean that I will do the opposite, ie. buy high ROIC companies regardless of valuation? Obviously not.

Generally, I don't reveal my investments on any blog or on VB.com. But since it may have caused a confusion here, I think I am obliged to reveal that I have ZERO position in Aztech Global. It was also never on my investable list. My interest in Aztech Global is purely because VBs seem to have written it off and so I decide to take "another look". It would also aid towards my learning on OEM/ODM/CM industry. I had suspected that its order book would keep declining (especially towards end of the year, where the orders have been delivered for year end holidays) but was just confused why customer deposits increased in 1H24 balance sheet. Now that the numbers are in for 3Q, it is very clear now to me. It also gave me a valuable idea on roughly how long their product cycle will generally be.

P.S. I hold Mandarin Oriental International shares (~5% of my portfolio) but reasons are probably quite different from you. But I suspect me and you might have more similarities than you think.