Aurelius Technology’s longer-term prospect remains intact

by S BIRRUNTHA/pic source:

AURELIUS Technology Bhd’s (ATech) longer-term prospect remains intact, underpinned by the group’s continuous expansion to cater to its customers’ demand, as well as further earnings upside from potential new customers.

According to Maybank Investment Bank Bhd (Maybank IB), the electronics manufacturing services (EMS) provider is already in an advanced stage of discussion on re-securing new orders.

“We like ATech for its robust earnings growth prospects, growing exposure to higher value-added multi-component integrated circuits (MCICs), as well as its low dependence on foreign labour (unlike its domestic peers),” it said in a research note today.

As such, Maybank IB maintained its ‘Buy’ call on ATech with a target price (TP) of RM2.03, based on its calendar year 2023 (CY23) earnings per share of 13.7 sen pegging to a price-earnings ratio (PER) of 14.8 times, in line with its EMS peers’ historical five-years weighted average PER.

It added that the group’s first quarter ended Jan 31, 2023 (1Q23) results came in at 16% of both the research house’s and consensus full-year estimates.

Maybank IB said it considers the results to be in line with expectations as it anticipates a stronger second half (2H) for the group.

The research house added that this was underpinned by the ramp-up in production of higher-margin MCICs for customer F; recovery from operational disruptions stemming from component shortages; and seasonal impact, as bulk orders are usually placed after end of festive season, coupled with fewer working days in 1H.

ATech registered a net profit of RM5.02 million for 1Q23, on the back of RM100.71 million in revenue, according to its filing to Bursa Malaysia.

The group’s 1Q23 revenue eased by -5.6% quarter-on-quarter (QoQ), mainly due to seasonal weakness and component shortages, which affected production for some customers in its communication and Internet of Things products segment.

Meanwhile, core net profit plunged by a larger -29% QoQ to RM5.4 million (after excluding one-off items such as unrealised foreign-exchange loss and fair value gain on revaluation of short-term investment), weighed down by a lower-margin product mix during the quarter. 

The group registered earnings per share of 1.4 sen for the period. 

As of May 2022, ATech has an orderbook of RM504 million against RM523 million in January.

On prospects, ATech noted that the challenges of the group for the financial year 2023 are dependent upon, among others, the recovery from the ongoing Covid-19 pandemic and other factors such as global semiconductors components shortage, labour supply shortage, minimum wages hike, ongoing Ukraine-Russia conflict, higher utility prices, increasing inflationary pressures and political instability.

However, it said having secured an order book of approximately RM504 million at the beginning of May 2022 and by continuing its effort to continuously build on its customer relationship, improving its production quality, efficiency, technical capability and capacity will better prepare the group in facing these challenges.

Barring any unforeseen circumstances, the group is cautiously optimistic on its performance for the financial year ending Jan 31, 2023.

Going forward, ATech is expecting to instal the fifth and sixth surface-mount technology production lines for Customer F by end-July and September 2022 respectively. 

“This will help to further boost sales volume for customer F from the second half of FY23 estimates onwards. 

“We are projecting ATech to produce at least 30% more semiconductor components (MCICs) pieces for customer F in 3Q23 against 1Q23,” Maybank IB said.

At 12.19pm today, ATech shares inched down one sen or 0.71% to RM1.4, valuing the group at RM501.45 million.