Aztech Global Launches S$297 Million IPO on SGX Mainboard: Should You Subscribe?
Joel Koh●
For the uninitiated, the Aztecs were a group of Mesoamerican peoples that dominated central Mexico from around 1300 to 1521.
They were known for their technological innovations having developed a form of hieroglyphic writing, a complex calendar system and advanced agricultural technologies for that time.
I am speculating here, but perhaps the Aztecs were an inspiration for the founders of the Aztech Group.
As interesting as the Aztecs are, that’s not what we are here to discuss today.
Instead, we will be talking about Aztech Global Ltd. (formerly known as Aztech Electronics) launching its initial public offering (IPO) on the mainboard of the Singapore Exchange (SGX: S68).
Intrigued? Here is what investors need to know!
TL;DR: Aztech Global IPO
| Aztech Global IPO Information | |
|---|---|
| Number of Shares on Offer | 68.12 million ordinary shares: (3.5 million public offer shares + 64.62 million placement shares) |
| Share Offering Price | S$1.28 |
| Estimated Net Proceeds | ~S$283.7 million |
| Amount Due to Company | ~S$188.6 million |
| Estimated Market Capitalisation | ~$990.4 million. |
| Aztech Global IPO Timeline | |
| Opening Date And Time For Public Offering | 5 Mar 2021, 9am |
| Closing Date And Time For Public Offer | 10 Mar 2021, 12pm |
| Commence Trading of Aztech Global's Shares on SGX | 12 Mar 2021, 9am |
Aztech Global IPO Information
Aztech Global expects to raise about S$297 million in gross proceeds for its IPO while net proceeds will amount to $283.7 million.
Of the net proceeds, the company will receive about S$188.6 million.
The company added that the funds for the IPO will be used in this manner:
- S$50 million will be used to expand and enhance its manufacturing facilities.
- Another S$50 million will be used to expand its business through investments, mergers and acquisitions, joint ventures and/or strategic collaboration.
- S$15 million will be put aside to enhance its Research and Development (R&D) capabilities.
- S$10 million will be funnelled to increase sales and marketing channels for overseas markets expansion.
- Another S$5 million will be used to expand its Original Design Manufacturer (ODM)/Joint Development Manufacturer (JDM) business to capitalise on opportunities in the growing Internet of Things (IoT) market.
- Lastly, S$58.6 million will be put aside for working capital.
Aztech Global IPO Cornerstone Investors
In addition to the public offering, Aztech Global will be offering another ~163.9 million Cornerstone Shares at the invitation price to 18 other cornerstone investors:
- Affin Hwang Asset Management Berhad
- AIA Bhd.
- AIA Investment Management Private Limited
- DBS Bank Ltd (acting on behalf of its wealth management clients)
- Eastspring Investments (Singapore) Limited
- Employees Provident Fund Board
- FIL Investment Management (Hong Kong) Limited
- Hong Leong Assurance Berhad
- HSBC Global Asset Management (Hong Kong) Limited
- ICH Capital pte Ltd
- JPMorgan Asset Management Singapore Limited
- Lion Global Investors Limited
- Magna New Frontiers Fund
- OAKS Emerging and Frontier Opportunities Fund and OAKS Smaller Emerging Market Opportunities Fund (which are funds advised by Fiera Capital Corporation)
- Matthews International Capital Management, LLC
- New Silk Road Investment Pte. Ltd.
- Tokio Marine Life Insurance Singapore Ltd.
- UOB Kay Hian Private Limited (on behalf of certain corporate clients)
- Value Partners Hong Kong Limited
Aztech Global Background
Aztech Global was actually incorporated as the holding company for Aztech Group’s electronic business back in 27 May 2009.
The company is part of the Aztech Group Ltd. conglomerate which was founded back in 1986.
According to its website, the Group is principally engaged in the business of electronics and electronic manufacturing services, LED lighting manufacturing and marine logistics services.
Back in the day, Aztech Group was listed in 1994 on the SGX Catalist board predecessor the Sesdaq. Subsequently, the company moved on to the SGX mainboard 12 years later.
However, the company was taken private and delisted from the SGX back in 2017 by its chairman and co-founder Mr Michael Mun.
According to The Straits Times, Mr Mun offered a not-so-sweet privatisation offer of just S$0.42 per share.
This was after the Aztech Group’s share price fell drastically from S$1 per share in May 2015 to S$0.32 per share just the day before the offer was made.
For context, the Group which started off as an electronics company was facing losses in Q3 2015 after it started diversifying into many unrelated businesses the years before.
Case in point, Aztech Group acquired Kay Lee Roast Meat for S$4million back in 2014.
But from 2017 onwards, the group began to streamline its business, exiting all its non-electronics units and focusing on growing its electronics unit.
In Aztech Global’s prospectus, the company stated that:
Post delisting of AGRP, AGRP has rationalised its businesses and exited most of its non-electronics businesses, including the marine and shipping business, as well as the food and beverage business. AGRP has focused on expanding its electronic business, which is consolidated under our Company. With the expected growth of our electronics business in the coming years, our Directors believe that the listing of our Company on the SGX-ST will enable us to tap the capital markets to raise funds to support such growth. In particular, it is imperative for our Group to grow to a good size and develop economies of scale in order to remain competitive and improve our ability to maintain and attract new customers in the technology sector.
Aztech Global Business
So you might be wondering. what does Aztech Global actually do?
The infographic above sums it up nicely.
But to put it simply, Aztech Global is selling shovels (hardware) for the technological revolution.
On top of manufacturing its products for other manufacturers as an original equipment manufacturer (OEM), original design manufacturer (ODM), joint design manufacturer, and contract manufacturers (CMS) (You can read about the differences here), the company also sells its own stuff under its ‘Aztech’ and ‘Kyla’ brands.
You might have seen the IoT devices and Data-communication products that Aztech Global sells.
A good example of this would be the Aztech routers that come bundled with your Singtel broadband.
Aztech Global Financials
It appears this renewed focus is paying off.
Aztech Global has been steadily growing its revenue.
Between FY2017 to FY2019, the company’s revenue grew at a compound annual growth rate (CAGR) of 6.6 per cent from S$377.2 million to S$428.8 million.
This increase in revenue is largely due to the increased demand for the company’s IoT and Data-communication product segments.
However, for the first 9 months of FY2020 that ended Septemeber 2020 (9MFY2020), the comapny’s revenue dropped by about 19.6 per cent to S$262.2 million.
This was probably down to disruptions brought about by the COVID-19 pandemic.
The company is also rather profitable.
Between FY2017 to FY2019, the company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) grew at CAGR of 80.7 per cent from S$19.7 million to S$64.3 million.
However, this growth in profits from 9MFY2019 to 9MFY2020 slowed down recently, as EBITDA dropped from S$44.0 million to $47.2 million.
But on balance, Aztech Global managed to increase its EBITDA margin from 14.7 to 16.8 per cent within the same time period.
This bodes well, as the company is managed to lower its operating expenses in relation to total revenue which will increase profitability.
In addition, Aztech’s has an outstanding order book that stands at around S$307.9 million, with orders expected to be delivered or completed within FY2021.
Dividend Policy
Although Aztech Global does not currently have a fixed dividend policy, the company’s directors intend to recommend dividends of at least 30.0% of our net profit after tax (excluding exceptional items) generated in FY2021 and FY2022′ as stated in its IPO prospectus.
But, this is still dependent on a few factors
- The level of cash and reserves.
- Actual and projected financial performance.
- Projected levels of capital expenditure, working capital requirements and investment plans.
One Major Risk
However, there is one major concern you have to take note of as a potential investor.
Investors should be cautious about Aztech Global’s customer concentration.
Aztech Global’s top three customers accounted for 57.7%, 13.44% and 12.07% of revenue respectively.
This means that about 83.21 per cent of its revenue is derived from just three major customers.
The company also highlighted this risk in its prospectus stating that it is:
exposed to concentration risk of reliance on our major customers, and may be adversely affected by any disruption or termination of our business relationships with our major customers or fluctuations in their demand for our products.
Should You Invest in Aztech Global’s IPO?
Before you think of subscribing, I would recommend that you do your due diligence and fully research and evaluate Aztech Global’s fundamentals before proceeding.
Also, check out our analysis of what you should consider before investing in IPOs.
How to Subscribe to Aztech Global IPO
Once you have done your research and decided you want to invest, you can refer to this guide on how to subscribe to IPOs!
What Are Your Thoughts on the Aztech Global IPO?
If you have any questions about Aztech Global, why not head over to Seedly to discuss them with like-minded individuals?
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
