Maybank IB expects ATech to sustain growth in business

By ANIS HAZIM / Pic credit: atechgroup.com.my

MAYBANK Investment Bank Bhd (Maybank IB) stated Aurelius Technologies Bhd (ATech) move to manufacture higher valued-added semiconductor components is good strategic move leading the bank to place a ‘Buy’ call on ATech with a target price (TP) of RM1.92. 

Its analyst Loh Yan Jin said ATech sets itself apart from its peers with its move to manufacture higher value-added semiconductor components comprising multi-component integrated circuits (MCICs). 

The products will serve as the Internet of Things (IoT) modules for IoT applications and mass production commenced in the financial year of 2021 (FYE1/21), according to the analyst. 

Loh expects ATech to see increases in its production capacity in FY23 as it is currently expanding its manufacturing plant. 

“Expansion of the group’s manufacturing plant is currently underway, with plans to progressively add new surface mount technology lines over the next two financial years,” 

Loh noted that this will increase the number of such lines from 11 to 15. Currently, four of ATech’s existing 11 lines are dedicated to the manufacture of MCICs for China-based Customer F.

“Three of the four new lines will be dedicated to this purpose as well, contributing to a 75% jump in annual capacity for the manufacture of MCICs over the course of FYE1/23,” she wrote. 

Moreover, Maybank IB has projected a strong two-year (FY22-FY24E) net profit compound annual growth rate (CAGR) of 50% for ATech, led by a two-year revenue CAGR of 20%, and augmented by an expansion in its overall gross profit margin from 11.4% in FY22E to 15.2% in FY24E. 

“We expect semiconductor components to account for 11% of ATech revenue by FY24E, but a heftier 40% of group gross profit by then due to higher margins,” she added. 

The analyst said ATech TP was pegged to a 14 times calendar year of 2023 (CY23) price-earnings ratio (PER) and reflects a 10% premium to its CY23 market-cap-weighted PER average of 12.6 times for its domestic and regional electronic manufacturing services (EMS) peers. 

“We believe the premium is both reasonable and justified given ATech’s two years core net profit CAGR (FY22-FY24E) of 50% is significantly higher than the 10% of its blended peer average, whilst its low PEG of 0.5 times is also attractive relative to the blended peer (1.3 times),” she said. 

She also opined that ATech has a near 100% local workforce further justifies this premium, especially in light of recent foreign labour controversies that have plagued the industry.