CONTINUED margin pressures and a more uncertain global economic outlook have prompted CGS-CIMB to cut its price target on Aztech Global to S$0.96 from S$1.22.
While the brokerage's revenue forecasts for FY2022 to FY2024 remain unchanged as it believes Aztech's order book remains "fairly resilient" - it has cut gross profit margin estimates by 0.5 to one percentage point to result in 3.8 per cent to 7.5 per cent lower earnings per share (EPS), resulting in a 7.5 per cent lower FY2023 EPS projection of S$0.124.
This has led to a lower valuation multiple of 7.7 times, which is half a standard deviation below Aztech's two-year average forward price-to-earnings multiple.
The manufacturing and engineering company was previously valued at 9.1 times FY2023 price-to-earnings projections as "the economic outlook then was more robust", said CGS-CIMB analysts in a report on Thursday (Oct 20).
Based on its Oct 19 closing price of S$0.735, the analysts note Aztech's forward 6.7 times multiple which implies it is currently trading at one standard deviation below its two-year average.
They are expecting the group to report Q3 FY2022 net profit of S$21.1 million on Nov 3 - which is up 16.9 per cent on year, but represents a 27.3 per cent quarter-on-quarter decline.
"In our view, Aztech may not have experienced net order cancellations but Q3 FY2022 performance could hinge on cost management," added the analysts.
CGS-CIMB nonetheless maintains its "add" call on Aztech as it believes the group's net cash balance sheet will be able to weather the downturn.
Projected dividend yields of about 8 to 10 per cent over FY2022 to FY2024 will "provide some relief", said its analysts, who also expect EPS to grow by 10.2 per cent in FY2023 and by 14.6 per cent in FY2024.
Shares of Aztech were trading S$0.01 or 1.4 per cent lower at S$0.73 as at 10.33 am on Friday.