Friday, January 18, 2008

Aztech ventures into construction materials??!!

Haha, what a surprise. I thought that after Dow's big diarrhea last night, i'll be expecting STI or HSI to drop a lot. It's surprising mild, or at least not as bad as I think. Perhaps the whole world is waiting for Bush and Ben to announce the economic stimulus package to see if it can save US from the recession.

An interesting news to share:

1. Aztech diversifies its business and is venturing into procurement and supply of materials for building and construction/infrastructure development projects. What a surprise!! Their net margin last year is 8.4%, so this year it should be lower as can be seen from their latest reports. I didn't expect them to follow the herd by going into construction line.

Two possible reasons for them to venture into something outside their field:

1. To generate more growth to keep shareholders happy. Perhaps their core business of IT goods are going to be eroded by the rising cost of goods (high wages in their plants in Dongguan plus rising yuan) and global slowdown in demand.

2. To extend the group's sources of revenue. To diversify. I wonder whether they are really diversifying or diworsifying..remains to be seen. If IT goods are cyclical, then construction is going to be cyclical too. Their reasons for wanting to get into this new venture is to capitalise on the high demand for construction materials driven by growth in Singapore, Asia and middle east. I hope they didn't bet wrongly.

Dow is up 75 points now. I'm down this week by around -9.4 k.

4 comments :

musicwhiz said...

Hi LP,

When I read of companies doing stuff like this, it always makes me wonder if their original core business is in trouble ? If you are running a good business which you are familiar with, why "diversify" into something unrelated and totally different ?

Regards, Musicwhiz

la papillion said...

Hi MW,

Yes, you're right. At last count, their manufacturing plant in China is facing rising wages. Add to that the appreciating yuan, it rises up that cost of goods which will eat up their margins.

Their industry is very competitive. If their pricing are not competitive, I think there is really no loyalty to their product because there are so so many substitutes for them.

So to me, Aztech is trying to salvage the whole situation by venturing into the latest and hottest industry - providing construction materials.

They might be jumping into another hotpot altogether, haha

musicwhiz said...

Hi LP,

Thanks, I agree with you on the points you raised. Such is the nature of commodity products which have no real pricing advantage or power when it faces fierce competition.

Aztech has to contend with the big boys out there like CSC, Yongnam, Lum Chang and Lian Beng. I doubt they will be very successful, in my opinion.

Regards, Musicwhiz

la papillion said...

Hi MW,

Haha, but to be fair, aztech is going into construction materials, not really into construction. So again, they are doing supplying commodities to the construction companies.

But this kind of thing, I think, is hard to break into as the existing suppliers should already have their own customer base. Why trust someone who had no prior experience?

I think it'll be interesting to find out more when the info is available.