Aztech: Diversification or Diworsification?

SINGAPORE, 10 March 2010 – Singapore Exchange Mainboard-listed Aztech Group Ltd (“Aztech”) today announced that its subsidiary Shiro Corporation Pte Ltd (“Shiro”) has ventured into the canned and frozen food business. Shiro targets the retail and food services market in Singapore and overseas with the mission of supplying restaurant grade quality food under the brand name of Jade or "Yu Huang" 《玉皇》.

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The concern now is whether Aztech's bold moves into areas outside of their area of competence, i.e. Marine Logistics, Materials Supply, and now F&B sector, is a matter of diversification or diworsification. The new diversification was perhaps expected on hindsight, as Aztech was seeking aggressively to enter a new area as seen in their consideration to enter the property segment, but backed out in the end.

Diworsification is a case where a company lose focus and try to grow by acquiring businesses that are not complementary to the business strategy of the company. Would Aztech fall into this trap? I won't be defending this company, so although I don't think they will, we should still look out for their business profitability in the next financial report.

In my opinion.............................
What Aztech is doing is akin to planting the seeds to multiple income sources. Just like me, I take income from my full time engineer job, my tuition sideline, my super duper small adsense income ExamWorld and WealthBuch blogs, and dividends from my investment portfolio. Am I diversifying or diworsifying?

Well, in my case, I do realise that if I had spent much much more time in any of these areas, perhaps I would do even better in them. By having 4 sources of income now, I realised that I need a lot more effort to maintain each individual income source (other than ExamWorld). It's a delicate balance to handle between different revenue streams, and grow or strengthen each stream till it is a substantial amount. A lot of time, energy and resources are needed in the process.

In a way, I find Aztech embarking on the same strategy as I have applied to my life. First, the main income stream in Electronics (for me, my engineer job). Then the diversification into Material Supply and Marine Logistics (for me, into dividends investing and tuition). Finally, into the defensive F&B industry (for me, my initial attempts at blogs and other online income streams).

While it may seem that I'm trying to defend Aztech, be assured I'm not. I'm too surprised by the sudden foray into the F&B industry. But perhaps, they could leverage on their Materials Supply segment to supply tin for them to manufacture tin cans for this new canned food venture? :)

It's more prudent for me to wait out and read the next quarterly financial report or 2009 annual report. But one thing looks for sure at the moment: the Material Supply and Marine Logistics segment have been profitable since inception, and appears likely to remain so. I looked favourably to the growth of their Marine Logistics business so far....

On the quick technical side, Aztech looks like resistance is approaching at 0.25. I don't expect it to be able to break it so easily yet although I could be wrong... so it's not a time to increase holdings even if this diversification is viewed favourably.