CIMB Research retains reduce for Aemulus but sees stronger recovery in 2019

KUALA LUMPUR: Aemulus Holdings Bhd FY9/18 results missed at 26% of CIMB Equities Research’s expectation due to lower-than-expected tester shipment volume in 4QFY18. 

The research house had on Friday cut its FY19-20F EPS by 25%-26%. It also maintained its Reduce recommendation with a lower target price of 30 sen, now based on 20 times CY20F P/E.

“We expect a stronger earnings recovery in FY19F, driven by new tester introduction for radio frequency (RF) and Internet of Things (IoT), resilient demand in enterprise and favourable forex,” it said.

Commenting on the results, it said 4QFY9/18 revenue dropped by 29% on-quarter due to lower RF tester shipment volumes as customers are turning more cautious in view of the escalating trade war between the US and China. 

Despite this, Aemulus still managed to capture new sales from its new Korean customer in the quarter. Following lower tester shipment volume, 4QFY18 core net profit plunged 83% on-quarter. 

Nevertheless, the group declared its first interim dividend of 0.2 sen per share in the quarter, ahead of its expectation.

Aemulus’s FY9/18 gross profit fell by 7.1% on-year, mainly due to lower RF tester sales, especially in Malaysia and China markets, which recorded 54% and 59% sales declines, respectively.

The group attributed the lower sales to lower capex allocation by domestic outsource assembly and test providers and cautious sentiment from customers in China in view of the escalating trade war.
 
Apart from that, Aemulus still maintained a lucrative 63.1% gross profit margin in FY18 (vs. 62.7% in FY17). Overall, the group’s FY18 net profit slid 30% on-year.

“We cut our FY19-20F EPS by 25-26% to reflect a lower tester shipment assumption in view of the sluggish outlook in the smartphone and tablet segment.
 
“Nevertheless, we still expect Aemulus to deliver a stronger earnings recovery in FY19F, driven by new testers baseband microcontroller and IoT applications and resilient demand in the enterprise segment, which accounted for about 40% of the group’s revenue in FY18,” it said.

CIMB Research said in addition, the group shared that its latest venture into developing new hardware and software solutions in the artificial intelligence (AI) space is progressing as planned. 

The group has started shipments of beta versions to selected customers for testing and expects the new venture to jumpstart its entry into the smart manufacturing segment. 

“We like Aemulus’s strategy of expanding into smart manufacturing, but we do not expect any meaningful contribution from this venture until FY20F.

“We maintain our Reduce rating with a lower 30 sen TP, as we roll over our valuation to end-2019, pegged at 20 times CY20F P/E, in line with the sector’s three-year historical mean. We see delays in new tester launches as a de-rating catalyst. 

“Key upside risks to our call are new customer wins and better earnings delivery from new tester models. Switch to MPI,” said CIMB Research.