This article first appeared in The Edge Financial Daily on April 20, 2018

Aemulus Holdings Bhd
(April 19, 39 sen)
Maintain hold with an unchanged target price (TP) of 45 sen: Aemulus Holdings Bhd’s share price went ex-bonus on Wednesday following the issuance of 109.7 million bonus shares, increasing the group’s share base to 548.6 million shares. The group highlighted that the bonus issue exercise is mainly to reward its existing shareholders. We are positive on the bonus issue. Although it does not alter the company’s fundamentals, we expect this corporate exercise to boost the stock’s liquidity and improve near-term trading sentiment.

Aemulus’s revenue in the first quarter of financial year 2018 (1QFY18) rose 69% year-on-year (y-o-y) to reach RM9.4 million on the back of higher tester shipment volumes due to resilient demand in the enterprise storage, smartphone and tablet markets. Meanwhile, the group’s research and development (R&D) expenses increased by 44% y-o-y in tandem with ongoing R&D activities and additional headcount to support product development. Overall, Aemulus posted y-o-y higher net profit of RM1 million in 1QFY18 compared with RM600,000 in 1QFY17.

We expect stronger earnings delivery by Aemulus from 2QFY18 onwards, driven by seasonal demand recovery and new customer wins. In addition, the group expects to register double-digit revenue growth from China and Taiwan in FY18 forecast (FY18F). Aemulus set up a new regional office in Taiwan in 2016 as part of management’s efforts to be closer to its key clients in North Asia. We are encouraged to see good traction by the Taiwan venture as it recorded 20% y-o-y revenue growth in FY17, driven by new customer wins.

We expect China to be a key growth driver for Aemulus in FY18F onwards, driven by successful product penetration into local Chinese semiconductor contract manufacturers and fabless players. We see Aemulus as a potential proxy for China’s strategy of building a domestic semiconductor ecosystem. Semi, the market research group, projects the semiconductor equipment market sales in China to grow by a staggering 57% in 2018 and 60% in 2019. We believe this bodes well for equipment players like Aemulus.

We maintain our “hold” rating on the stock with an unchanged TP of 45 sen, still based on 22 times 2019 forecast price-earnings ratio, at a 10% premium over the Malaysian test equipment sector mean. We project Aemulus to record a healthy 18% net profit compound annual growth rate in FY17 to FY20F. We see new designs and customer wins as upside risks to our call, while the strengthening of the ringgit versus the US dollar and weaker demand for testers are downside risks. — CGSCIMB Research, April 18