SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

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Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

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<li>
Aztech Global listed on the SGX Mainboard today. The technology unit of Aztech Group (previously listed on SGX), provides one-stop design and manufacturing services. With core strengths in R&amp;D, design, engineering and manufacturing, its key products include IoT Devices, Data-communication and LED lighting. 
	 </li>
	<li>
The Group is also a key technology enabler for its customers which include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors in North America, Europe and Asia (Taiwan, Japan, South Korea). 
	 </li>
	<li>The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY21 and FY22. </li>
</ul>
 

Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses and has listed on SGX today with a market value of over $1 billion, based on the opening price of S$1.37. Aztech Global has three key product segments – i) Internet of Things (IoT) Devices and Data-communication products, ii) LED lighting products, and iii) Other electrical products. It has over 290 customers worldwide and its products are sold in over 40 countries through multiple channels.
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 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_4.PNG' alt='Key Product Segments' />
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 <div class='content-caption'>Key Product Segments</div>
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Based on its IPO Prospectus, the Group believes that drivers for its business include:

<ul>
<li>
Increasing demand for IoT Devices and Data-communication products – Global IoT industry consumer market is expected to grow at a CAGR of 23.4% to US$94.8 billion by 2023, while the non-consumer segment to grow at a CAGR of 20.2% to US$330.4 billion by 2023. Global data-communications and LED lighting are expected to grow to US$59.2 billion and US$80 billion by 2023 respectively</li>
	<li>
Positive outlook for the LED lighting industry – Global penetration rate of LED lighting estimated to reach 42.8% in 2023 from 25.3% in 2019.</li>
</ul>
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 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_5.PNG' alt='Market size to IoT Devices' />
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 <div class='content-caption'>Market size to IoT Devices</div>
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Highlights of the IPO

1. Established track record and experienced management team in the electronics industry 

<ul>
<li>Led by experienced management team and helmed by founder and Executive Chairman and CEO, Mr. Michael Mun, who has over 30 years of experience in the electronics industry.</li>
	<li>Management team has in-depth product, industry and technical knowledge, coupled with strong management capabilities and business network, and instrumental in building the Group’s brand globally.</li>
</ul>
 

2. Strong core competencies of in-house R&amp;D and production engineering capabilities

<ul>
<li>According to Frost &amp; Sullivan, the Group’s strong core capabilities in design and manufacturing to value-add production processes is what differentiates Aztech Global from other pure-play contract manufacturers.</li>
	<li>Dedicated research and development (R&amp;D) team comprising 142 staff collectively equipped with expertise and experience in industrial design, mechanical engineering, electronics and electrical engineering and software and hardware design.</li>
	<li>Close engagement with customers in the early stages of product design and development and strong emphasis on the protection of customers’ intellectual property.</li>
</ul>
 

3. Strong manufacturing capabilities at diversified and highly integrated facilities in the PRC and Malaysia  

<ul>
<li>Aztech Global has operations in two countries – Malaysia and the PRC – to reduce logistics costs and ensure prompt flexible scheduling and just-in-time delivery.</li>
	<li>Production lines for LED lighting products, IoT products, data-communication products and other electronic products are housed in its manufacturing facility in Dongguan, Guangdong Province, the PRC in order to enjoy economies of scale as these products share similar manufacturing processes.</li>
	<li>The Group believes that its Dongguan facility, which is designed to be able to support both high-volume-low-mix and low-volume-high-mix production requirements, allows it to capture a wider customer base as compared to other manufacturers.</li>
</ul>
 

4. Key technology enabler to customers, including multi-national blue-chip corporations

<ul>
<li>Key customers include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors.</li>
	<li>The Group has three major customers with account for 5.0% or more of its revenue.
	<ul>
<li>Customer A (accounts for 49.0% of FY19 revenue) is a major US e-commerce retailer – supplies smart security cameras for them.</li>
		<li>Customer B (28.4% of FY19 revenue) is a Hong Kong subsidiary of a leading Europe-based multinational lighting group – supplies LED lighting products for them.</li>
		<li>Customer C (8.9% of FY19 revenue) is a German company specializing in smart home technology – supplies HomePlug for them.</li>
	</ul>
</li>
</ul>
 

5. Robust product portfolio catered to fast-growing industries and globally diversified sales channels

<ul>
<li>As at 15 February 2021, the Group had an outstanding order book of c.S$307.9 million, comprising c.S$292.4 million for IoT Devices and Data-communication products segment and c.S$15.5 million for LED lighting products segment, all expected to be delivered or completed within FY2021.</li>
</ul>
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 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_6.PNG' alt='Over 30 years' />
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 <div class='content-caption'>Over 30 years</div>
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Business Strategies and Future Plans

<ul>
<li>Expansion of manufacturing facilities such as sites outside of the PRC to double existing production capacity</li>
	<li>Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market</li>
	<li>Enhance of R&amp;D capabilities through staff recruitment and strategic collaborations</li>
	<li>Increase sales and marketing channels for overseas market expansion such as America, Europe, the PRC and Japan</li>
	<li>Diversification of business through investments, M&amp;As, joint ventures and/or strategic collaborations</li>
</ul>
 

Key Risks (See Page 38 of the IPO Prospectus for more risk factors)

<ul>
<li>Subject to potential adverse consequences due to the Group’s lack of valid certificates, permits and other approvals in respect of the Dongguan Land and the buildings on it.</li>
	<li>Business operations may be materially and adversely affected if the Group fails to comply with laws, regulations and conditions stipulated in any licences, permits, registrations or approvals, and/or are unable to obtain, maintain and/or renew the required licences, permits, registrations and approvals.</li>
	<li>Exposed to concentration risk of reliance on its major customers, and may be adversely affected by any disruption or termination of its business relationships with its major customers or fluctuations in their demand for its products.</li>
	<li>Plan their production based on customers’ projections of the demand for their products which may not materialize into orders.</li>
</ul>
 

Financials &amp; Valuation

<ul>
<li>Based on its consolidated statements of comprehensive income, revenue for FY2019 was at S$428.8 million and audited revenue for 9M2020 was S$262.2 million. Profit after tax was S$47.2 million in FY2019 while 9M2020 (audited) was S$30.5 million.</li>
	<li>According to the IPO prospectus, Aztech Global’s earnings per share (EPS) is at 7.47 Singapore cents for FY2019 based on the audited consolidated statement of comprehensive income and the company’s share capital immediately before the issuance of New Cornerstone Shares, assuming the Service Agreements had been effect since 1 January 2019. Based on this and the Invitation Price of S$1.28, the price-to-earnings (P/E) ratio is 17.1x for FY2019.</li>
	<li>The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY2021 and FY2022.</li>
</ul>
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-03/Capture%201_7.PNG' alt='Revenue' />
 </figure>
 <div class='content-caption'>Revenue</div>
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Additional Information from Prospectus <a href="https://links.sgx.com/FileOpen/Aztech%20Global%20Prospectus.ashx?App=IPO&amp;FileID=6272">(click here)</a>

 Company Background 
Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses. Aztech Group was founded in 1986 by Executive Chairman and CEO, Mr. Michael Mun, who co-founded the business to undertake the design, manufacture and distribution of personal computers. The Group’s product range has since expanded to include electronic products ranging from sound cards, and DECT phones to its current focus of IoT Devices, Data-communication products and LED lighting products. Aztech Group was listed on SESDAQ and subsequently delisted from the SGX in 2017. 
The Group commenced a rebranding exercise in December 2019 which the “Aztech” brand is now used for the Group’s business-to-business markets providing OEM, ODM, JDM, and CMS services while the “Kyla” brand is used in the Group’s business-to-consumer markets selling products under its own name. 
 

IPO details

<ul>
<li>Invitation price at S$1.28 per Offer Share</li>
	<li>68.12 million Offer Shares comprising:
	<ul>
<li>64.62 million Placement Shares by way of Placement</li>
		<li>3.5 million Public Offer Shares</li>
	</ul>
</li>
	<li>Estimated IPO market capitalisation at S$990.4 million</li>
	<li>Use of gross proceeds from the issuance of the New Cornerstone Shares (S$198.4 million):
	<ul>
<li>S$50.0 million – Expansion and enhancement of manufacturing facilities</li>
		<li>S$50.0 million – Expansion of business through investments, M&amp;A, joint ventures and/or strategic collaboration</li>
		<li>S$15.0 million – Enhancement of R&amp;D capabilities</li>
		<li>S$10.0 million – Increase sales and marketing channels for overseas markets expansion</li>
		<li>S$5.0 million – Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market</li>
		<li>S$58.6 million – Working capital</li>
		<li>S$9.8 million – Listings expenses 
		 </li>
	</ul>
</li>
</ul>
Cornerstone Investors

At the same time as but separate from the Invitation, each of the Cornerstone Investors has entered into separate Cornerstone Agreements with our Company and/or Vendor to subscribe for and/or purchase an aggregate of 163,880,000 Cornerstone Shares (approx. 21.2% of the total number of issued shares) at the Invitation Price, conditional upon the, among others, the Management and Underwriting Agreement having been entered into and not having been terminated pursuant to its terms on or prior to the Listing Date. The Cornerstone Investors are:

<ul>
<li>Affin Hwang Asset Management Berhad</li>
	<li>AIA Investment Management Private Limited and AIA Bhd.</li>
	<li>DBS Bank Ltd.</li>
	<li>Eastspring Investments (Singapore) Limited</li>
	<li>Employees Provident Fund Board</li>
	<li>FIL Investment Management (Hong Kong) Limited</li>
	<li>Hong Leong Assurance Berhad</li>
	<li>HSBC Global Asset Management (Hong Kong) Ltd</li>
	<li>ICH Capital Pte Ltd</li>
	<li>JPMorgan Asset Management (Singapore) Limited</li>
	<li>Lion Global Investors Limited</li>
	<li>Fiera Capital (Magna New Frontiers Fund, OAKS Emerging and Frontier Opportunities Fund, and OAKS Smaller Emerging Market Opportunities Fund)</li>
	<li>Matthews International Capital Management, LLC</li>
	<li>New Silk Road Investment Pte. Ltd.</li>
	<li>Tokio Marine Life Insurance Singapore Ltd</li>
	<li>UOB Kay Hian Private Limited (on behalf of certain corporate clients)</li>
	<li>Value Partners Hong Kong Limited</li>
</ul>
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Aztech Global listed on the SGX Mainboard today. The technology unit of Aztech Group (previously listed on SGX), provides one-stop design and manufacturing services. With core strengths in R&amp;D, design, engineering and manufacturing, its key products include IoT Devices, Data-communication and LED lighting. 
	 
	
The Group is also a key technology enabler for its customers which include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors in North America, Europe and Asia (Taiwan, Japan, South Korea). 
	 
	The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY21 and FY22. 

 

Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses and has listed on SGX today with a market value of over $1 billion, based on the opening price of S$1.37. Aztech Global has three key product segments – i) Internet of Things (IoT) Devices and Data-communication products, ii) LED lighting products, and iii) Other electrical products. It has over 290 customers worldwide and its products are sold in over 40 countries through multiple channels.



      
    
    Key Product Segments


Based on its IPO Prospectus, the Group believes that drivers for its business include:



Increasing demand for IoT Devices and Data-communication products – Global IoT industry consumer market is expected to grow at a CAGR of 23.4% to US$94.8 billion by 2023, while the non-consumer segment to grow at a CAGR of 20.2% to US$330.4 billion by 2023. Global data-communications and LED lighting are expected to grow to US$59.2 billion and US$80 billion by 2023 respectively
	
Positive outlook for the LED lighting industry – Global penetration rate of LED lighting estimated to reach 42.8% in 2023 from 25.3% in 2019.




      
    
    Market size to IoT Devices


Highlights of the IPO

1. Established track record and experienced management team in the electronics industry 


Led by experienced management team and helmed by founder and Executive Chairman and CEO, Mr. Michael Mun, who has over 30 years of experience in the electronics industry.
	Management team has in-depth product, industry and technical knowledge, coupled with strong management capabilities and business network, and instrumental in building the Group’s brand globally.

 

2. Strong core competencies of in-house R&amp;D and production engineering capabilities


According to Frost &amp; Sullivan, the Group’s strong core capabilities in design and manufacturing to value-add production processes is what differentiates Aztech Global from other pure-play contract manufacturers.
	Dedicated research and development (R&amp;D) team comprising 142 staff collectively equipped with expertise and experience in industrial design, mechanical engineering, electronics and electrical engineering and software and hardware design.
	Close engagement with customers in the early stages of product design and development and strong emphasis on the protection of customers’ intellectual property.

 

3. Strong manufacturing capabilities at diversified and highly integrated facilities in the PRC and Malaysia  


Aztech Global has operations in two countries – Malaysia and the PRC – to reduce logistics costs and ensure prompt flexible scheduling and just-in-time delivery.
	Production lines for LED lighting products, IoT products, data-communication products and other electronic products are housed in its manufacturing facility in Dongguan, Guangdong Province, the PRC in order to enjoy economies of scale as these products share similar manufacturing processes.
	The Group believes that its Dongguan facility, which is designed to be able to support both high-volume-low-mix and low-volume-high-mix production requirements, allows it to capture a wider customer base as compared to other manufacturers.

 

4. Key technology enabler to customers, including multi-national blue-chip corporations


Key customers include multi-national blue chip corporations that are market leaders ranging from IoT/Smart Home devices and LED lighting markets, to security cameras and wearable sensors.
	The Group has three major customers with account for 5.0% or more of its revenue.
	
Customer A (accounts for 49.0% of FY19 revenue) is a major US e-commerce retailer – supplies smart security cameras for them.
		Customer B (28.4% of FY19 revenue) is a Hong Kong subsidiary of a leading Europe-based multinational lighting group – supplies LED lighting products for them.
		Customer C (8.9% of FY19 revenue) is a German company specializing in smart home technology – supplies HomePlug for them.
	


 

5. Robust product portfolio catered to fast-growing industries and globally diversified sales channels


As at 15 February 2021, the Group had an outstanding order book of c.S$307.9 million, comprising c.S$292.4 million for IoT Devices and Data-communication products segment and c.S$15.5 million for LED lighting products segment, all expected to be delivered or completed within FY2021.




      
    
    Over 30 years


Business Strategies and Future Plans


Expansion of manufacturing facilities such as sites outside of the PRC to double existing production capacity
	Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market
	Enhance of R&amp;D capabilities through staff recruitment and strategic collaborations
	Increase sales and marketing channels for overseas market expansion such as America, Europe, the PRC and Japan
	Diversification of business through investments, M&amp;As, joint ventures and/or strategic collaborations

 

Key Risks (See Page 38 of the IPO Prospectus for more risk factors)


Subject to potential adverse consequences due to the Group’s lack of valid certificates, permits and other approvals in respect of the Dongguan Land and the buildings on it.
	Business operations may be materially and adversely affected if the Group fails to comply with laws, regulations and conditions stipulated in any licences, permits, registrations or approvals, and/or are unable to obtain, maintain and/or renew the required licences, permits, registrations and approvals.
	Exposed to concentration risk of reliance on its major customers, and may be adversely affected by any disruption or termination of its business relationships with its major customers or fluctuations in their demand for its products.
	Plan their production based on customers’ projections of the demand for their products which may not materialize into orders.

 

Financials &amp; Valuation


Based on its consolidated statements of comprehensive income, revenue for FY2019 was at S$428.8 million and audited revenue for 9M2020 was S$262.2 million. Profit after tax was S$47.2 million in FY2019 while 9M2020 (audited) was S$30.5 million.
	According to the IPO prospectus, Aztech Global’s earnings per share (EPS) is at 7.47 Singapore cents for FY2019 based on the audited consolidated statement of comprehensive income and the company’s share capital immediately before the issuance of New Cornerstone Shares, assuming the Service Agreements had been effect since 1 January 2019. Based on this and the Invitation Price of S$1.28, the price-to-earnings (P/E) ratio is 17.1x for FY2019.
	The Group does not have a fixed dividend policy, however, its Directors intend to recommend dividends of at least 30% of its net profit after tax (excluding exceptional items) generated in FY2021 and FY2022.




      
    
    Revenue


Additional Information from Prospectus (click here)

 Company Background  
Aztech Global was formed in 2009 as a holding company for Aztech Group’s electronics and LED manufacturing businesses. Aztech Group was founded in 1986 by Executive Chairman and CEO, Mr. Michael Mun, who co-founded the business to undertake the design, manufacture and distribution of personal computers. The Group’s product range has since expanded to include electronic products ranging from sound cards, and DECT phones to its current focus of IoT Devices, Data-communication products and LED lighting products. Aztech Group was listed on SESDAQ and subsequently delisted from the SGX in 2017.  
The Group commenced a rebranding exercise in December 2019 which the “Aztech” brand is now used for the Group’s business-to-business markets providing OEM, ODM, JDM, and CMS services while the “Kyla” brand is used in the Group’s business-to-consumer markets selling products under its own name. 
 

IPO details


Invitation price at S$1.28 per Offer Share
	68.12 million Offer Shares comprising:
	
64.62 million Placement Shares by way of Placement
		3.5 million Public Offer Shares
	

	Estimated IPO market capitalisation at S$990.4 million
	Use of gross proceeds from the issuance of the New Cornerstone Shares (S$198.4 million):
	
S$50.0 million – Expansion and enhancement of manufacturing facilities
		S$50.0 million – Expansion of business through investments, M&amp;A, joint ventures and/or strategic collaboration
		S$15.0 million – Enhancement of R&amp;D capabilities
		S$10.0 million – Increase sales and marketing channels for overseas markets expansion
		S$5.0 million – Expansion of ODM/JDM business to capitalize on opportunities in the growing IoT market
		S$58.6 million – Working capital
		S$9.8 million – Listings expenses 
		 
	


Cornerstone Investors

At the same time as but separate from the Invitation, each of the Cornerstone Investors has entered into separate Cornerstone Agreements with our Company and/or Vendor to subscribe for and/or purchase an aggregate of 163,880,000 Cornerstone Shares (approx. 21.2% of the total number of issued shares) at the Invitation Price, conditional upon the, among others, the Management and Underwriting Agreement having been entered into and not having been terminated pursuant to its terms on or prior to the Listing Date. The Cornerstone Investors are:


Affin Hwang Asset Management Berhad
	AIA Investment Management Private Limited and AIA Bhd.
	DBS Bank Ltd.
	Eastspring Investments (Singapore) Limited
	Employees Provident Fund Board
	FIL Investment Management (Hong Kong) Limited
	Hong Leong Assurance Berhad
	HSBC Global Asset Management (Hong Kong) Ltd
	ICH Capital Pte Ltd
	JPMorgan Asset Management (Singapore) Limited
	Lion Global Investors Limited
	Fiera Capital (Magna New Frontiers Fund, OAKS Emerging and Frontier Opportunities Fund, and OAKS Smaller Emerging Market Opportunities Fund)
	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 – Delighting People with Smarter Solutions – Debuts on SGX

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Aztech Global – Delighting People with Smarter Solutions – Debuts on SGX

Aztech Global listed on the SGX Mainboard today. The technology unit of Aztech Group (previously listed on SGX), provides one-stop design and...

Singapore Exchange Ltd (SGX)