By FAYYADH JAAFAR
AURELIUS Technologies Bhd (ATech), an electronics manufacturer, is seeking to raise RM105 million from its IPO to fund expansion of its production facilities has been rated ‘Subscribe’ by Mercury Securities Sdn Bhd with a fair value of RM1.51 share.
That is above the IPO’s offer price of RM1.36 a share.
“We have a ‘Subscribe’ recommendation on ATech with a target price of RM1.51 based on peers average price-earnings multiple of 22.2 times and financial year 2022 forecast (FY22F) earnings per share (EPS) of 6.8 sen on the premise of exciting growth due to its gearing towards IR4.0 and increased production space.
We think that ATech is able to leverage its proven track record of 28 years in the electronics industry to capture opportunities in the growing of electronics manufacturing service (EMS) space,” the broker firm wrote in a report on ATech yesterday.
RHB Research’s analyst Soong Wei Siang stated that ATech’s target is to have seven production lines dedicated to increasing its semiconductor component manufacturing to cater to its increased demand for its existing business.
He added that ATech could trade at a fair value (FV) of RM1.73. The FV is derived by pegging 18 times price-to-earnings (P/E) to its FY23F EPS of 9.6 sen.
“The P/E implies a 5%-20% discount from the valuations we ascribed to the EMS stocks under our coverage, given ATech’s relatively smaller market capitalisation and profit base. This is in line with the current average of its peers’ market valuations,” he stated in the report.
He forecast a three-year earnings compound annual growth rate of 36% for ATech premised on robust job orders from existing customers and progressive contributions from a new one in the semi-conductor space.
Meanwhile, TA Securities’ chartered financial analyst Wilson Loon noted that ATech has a track record of 28 years and its strong brand name will help it gain market share from its competitors.
“Over the years, the group’s technical team, manufacturing facilities and capabilities have successfully evolved alongside advancements in the electronics industry. This includes its incorporation of higher automation of manufacturing processes, such as via adoption of scalable automation processes, Internet of Things (IoT)-based automated guided vehicles and the implementation of its manufacturing execution system,” he said.
At the IPO price of RM1.36 per share, ATech is priced at a trailing P/E of 31 times against its FY21 core EPS.
“As we ascribe a target P/E multiple of 20 times against CY22F EPS, we derive a FV of RM1.73 per share. We opine that the assigned P/E multiple is justified by ATech’s double-digit earnings growth
prospects on the back of its expansion plans to capitalise on growth from communications and IoT amid global digital transformation and latent prospects from its upcoming lithium-ion battery pack system. For reference, its peers on the local bourse, including VS Industry Bhd, SKP Resources Bhd and PIE Industrial Bhd, trade in the range of 16-20 times against CY22F EPS,” he added.
More recently, in FY20, the group expanded its product portfolio to include the manufacturing of semiconductor components in tandem with its strategy to move up the manufacturing value chain.
The group sources input materials from Malaysia and foreign countries, with imported input materials accounting for circa 70%–75% of purchases of input materials for the financial year under review.
“Any serious and prolonged global shortage of such input materials may lead to lost business opportunities and delays in production, which may affect the group’s reputation and revenue recognition, while dampening growth. The cost of production is also dependent on the cost of input materials used, which, in turn, is dependent on the prevailing price trends in the market,” he said.
That said, the group minimises its exposure to shortages and price fluctuations by purchasing from suppliers recommended by its customers and sourcing from suppliers based on the concept of competitive priorities.