Affin Hwang concerned over Aemulus' long-term outlook


  • Business
  • Wednesday, 18 May 2016

AEMULUS HOLDINGS BHD

By Affin Hwang Capital

Sell (Maintain)

Target price: RM0.20

AEMULUS reported second quarter revenue of RM7.8mil, a 188% increase quarter-on-quarter (q-o-q), on the back of higher sales from its automated test equipment (ATE) segment to China buyers.

ATE sales grew 201% q-o-q 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% q-o-q to RM500,000 mainly due to higher product customisations.

Despite the sharp improvement q-o-q, revenue continues to disappoint against Affin Hwang Capital’s forecast.

“Cumulatively, the group’s first half revenue only made up 32% of our previous estimate, mainly due to slower-than-expected sales.

“Aemulus’ second quarter gross margin was below our expectation at 55%, a sharp decline of 5 percentage points q-o-q, likely due to lower average selling prices (ASP) and higher US dollar content costs amid a stronger ringgit,” said Affin Hwang Capital.

The group’s earnings before interest, taxes, depreciation and amortisation margin also fell to 15%, dragged down by high fixed administrative expenses.

Aemulus also booked foreign exchange losses of RM600,000 for the quarter.

The research house added that although 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 the first half’s core net loss to RM600,000.

Aemulus’ first half results were markedly below the research house’s expectations and only made up 5% of Affin Hwang Capital’s and consensus expectations.

It said Aemulus’ high operating leverage made 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 FY2016 to FY2018 and are now projecting earnings per share (EPS) to decline by 39% in FY2016 estimate,” said Affin Hwang Capital.

Felda Global Ventures Holdings Bhd

By Kenanga Research

Underperform

Target price: RM1.21

ALTHOUGH Felda Global Ventures Holdings Bhd’s (FGV) had scrapped its plan to acquire a 55% stake in China-based edible oil producer Zhong Ling Nutril-Oil Holdings Ltd, Kenanga Research reckoned that the active talks on the Eagle High acquisition could prolong negative sentiment on the plantation company.

Kenanga said while FGV’s new transition plan could lead to long-term improvement in FGV’s bottom-line, the short-term risks include negative fresh fruit bunches (FFB) growth and negative sentiment on the Eagle High deal could limit share price upside.

The research house said it was maintaining its “underperform” view on FGV with target price of RM1.21 based on unchanged forward price-earnings ratio (PE) of 20.5 times.

It said that the PE applied to FY16 estimated earnings per share of 5.8 sen.

On FGV’s move to withdraw its Roundtable of Sustainable Palm Oil (RSPO) certificates for its 58 mills on May 3, Kenanga said that it had maintained its earnings forecast on FGV.

The research house also said that the business impact remains unclear as FGV’s management said that discussion is on-going with its buyers on whether they would continue buying from FGV after its withdrawal.

It added that while FGV could partly recover its RSPO premiums as its facilities are re-certified, this is offset by the additional cost of re-certification.

Kenanga also said FGV’s management mentioned that the recertifying process could cost about.RM35m over the three years, inclusive of training costs.

It noted that FGV’s plan to re-certify its facilities within three years remains in place, with a target of 15 complexes to be recertified in FY16.

Kuala Lumpur Kepong Bhd

By MIDF Research

Buy (maintain)

Target price: RM27.38

Plantation company, Kuala Lumpur Kepong Bhd (KLK) first half of financial year 2016 results were within expectations.

At 49.4% of consensus and 49.3% of MIDF forecast, KLK first half of the year core net income (CNI) of RM536mil was within expectation.

The CNI calculation excluded these one off items of RM492mil profit from sale of plantation land, RM95mil forex loss, RM12mil

provision for write-off of inventories, and RM43mil of other surplus.

As expected, a 15.0 sen dividend is announced.

The improved CNI is contributed mainly by higher earnings before interest and tax in manufacturing division that grew 146% to RM226mil.

Note that manufacturing division revenue has surged by 24% to RM3.62bil due to higher sales volume in Europe and China.

MIDF believed that this is likely due to the contribution from new capacities in the fatty acid business.

Going forward, plantation division is looking ahead to a conservative outlook.

Management believed that current palm oil price is supported by lower production and increase in biodiesel consumption.

However, the uncertain economic and weather conditions together with the anticipated higher fresh fruit bunches production in the coming months and narrower discount of palm oil to soybean oil could bear some negative effects on palm oil prices.

Nevertheless, the research firm was more bullish on crude palm oil price price as it expected that the impact of Super El Nino should curb supply until fourth quarter of this calendar year.

MIDF earnings estimates for financial year 2016 and 2017 are unchanged.

It maintained ‘buy’ call on KLK due to its high exposure to palm oil business, good earnings growth of 41% year on year to RM536mil in the first half and it is one of the rare big-cap index-linked planters which is Shariah compliant and also a member of Roundtable of Sustainable Palm Oil (RSPO) .


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