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This article first appeared in The Edge Financial Daily on May 22, 2017

Aemulus Holdings Bhd
(May 19, 53 sen)
Maintain hold with higher target price of 53 sen:
Revenue in the second quarter of the financial year 2017 (2QFY17) rose 38.2% year-on-year (y-o-y) to reach RM10.8 million on the back of higher tester shipment volumes due to improving demand enterprise storage, smartphone and tablet (S&T) markets. The group’s earnings before interest, taxes, depreciation and amortisation margin expanded by 9.1 percentage points y-o-y to reach 24.3%. As a result of higher operating leverage, Aemulus Holdings Bhd posted a higher core net profit of RM2.4 million in 2QFY17 compared with RM1 million in 2QFY16.

In 1HFY/17, revenue rose by 55.9% y-o-y due to higher tester shipment volumes on the back of a successful automated tester equipment design win for a tier-one smartphone company and demand recovery across the enterprise storage and S&T segments. Aemulus shipped three units of AE4600 tester in 2QFY/17, which already exceeds the two units that it shipped for the whole of FY16. Overall, Aemulus recorded a core net profit of RM3 million in 1HFY/17 against a core net loss of RM0.8 million in 1HFY17.

In terms of geographical breakdown, most key markets such as Malaysia, Singapore and US reported healthy sales growth in 1HFY17. However, China recorded a 46% drop in revenue. The group attributed the lower sales from China to timing; it expects sales from China to pick up in 3QFY17. The group expects rising 4G network deployment in China to drive stronger demand for its radio frequency (RF) tester.

Aemulus plans to launch a new enhanced RF tester for the S&T segment to replace its AE7600 models in September. The new tester is expected to offer better performance in terms of speed and productivity. In addition, Aemulus’ AE7600 RF tester was chosen in February as the preferred test platform by US-based Energous Corp, the developer of “WattUp”, a wireless charging technology solution.

We raise our FY17-19 forward earnings per share by 31%-72% to account for higher tester shipment volumes for the AE4600 and AE7600 models by about 15%-30%, and margin expansion from higher utilisation. We believe Aemulus is on track for an earnings recovery in FY17 driven by improving demand outlook in the global semiconductor industry as independent market research groups are projecting a 7% sales growth in 2017 (versus 1.1% in 2016).

We expect Aemulus to return to profitability in FY17, driven by new tester products and a recovery in industry demand. — CIMB Research, May 18

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