Affin Hwang maintains sell on Aemulus Holdings


  • Business
  • Tuesday, 17 May 2016

Aemulus plans to invest RM25mil for the next three years in R&D in this project

KUALA LUMPUR: Affin Hwang Capital Research has maintained its “sell” rating on test equipment manufacturer AEMULUS HOLDINGS BHD and trimmed target price to 20 sen.

“Although returning to the black in second quarter financial year ending Sept 30, 2016 (FY16), Aemulus’ disappointing run continued with its third successive quarterly earnings.

“Poor product sales and high fixed administrative expenses dragged down earnings and full year earnings per share decline year-on-year is now likely. We cut our target price to 20 sen on lower earnings forecasts. Without any clear catalyst in sight for the stock, maintain sell,” Affin said.

Aemulus reported 2QFY16 revenue of RM7.8mil on the back of higher sales from its automated test equipment (ATE) segment to China buyers. ATE sales grew 201% quarter-on-quarter to RM7.3mil, likely spurred by higher sale of flagship products Amoeba 4600 and 7600. No new product was introduced for the quarter. Revenue from its services segment grew 80% quarter-on-quarter to RM500,000 mainly due to higher product customisations.

“Despite the sharp improvement quarter-on-quarter, revenue continues to disappoint against our forecast. Cumulatively, 1HFY16 revenue only made up 32% of our previous estimate, mainly due to slower-than-expected sales,” Affin said, adding that the 2QFY16 gross margin was below its expectation at 55%, a sharp decline of 5 percentage points quarter-on-quarter.

Affin said although Aemulus’ 2QFY16 core net profit returned to the black with a core net profit of RM1.1mil, this was nevertheless insufficient to offset the huge losses in the previous quarter, and thus narrowing 1HFY16 core net loss to RM600,000.

“1HFY16 results were markedly below our expectations and only made up 5% of our and consensus expectations,” it said.

“Aemulus’ high operating leverage makes it susceptible to any sales slowdown amid bulging fixed administrative costs and declining margins.

“We remain concerned over the long term outlook given the lack of new product launches and thus poor earnings visibility. Current ringgit strength would be a further risk. We are cutting our earnings by 42-48% for FY16-18 and are now projecting EPS to decline by 39% in FY16 estimate,” Affin said.

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