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Tuesday, January 24, 2017

CIMB Research retains Hold on Aemulus

KUALA LUMPUR: CIMB Equities Research is maintaining its Hold recommendation on Aemulus Holdings Bhd with a higher target price of 25 sen as it expects the semiconductor-related company to return to profitability in 2017.

It said on Tuesday the target price was based on 16 times CY18F price-to-earnings (P/E), which is a 20% discount to sector P/E vs. 30% previously due to improving industry outlook.

“We expect Aemulus to return to profitability in FY17, driven by new tester products and industry demand recovery. Moreover, we see stronger demand from China in FY17 following management's decision to set up a new regional office last year,” it said.

On Monday, Aemulus announced it was buying 1.63 acres of land in Bayan Lepas Industrial Park, Penang for RM9.9mil. The company plans to build a corporate office building, and a product testing and design centre on the currently vacant site.

This is as part of the group’s initiative to consolidate its existing operations in Bayan Baru and Batu Maung under one roof to improve its operating efficiencies as it is currently renting the two separate facilities on Penang island.

“Aemulus expects the new facility to be completed in Dec 2018. The new facility will have a bigger built-up area of 50,000 sq ft compared with the combined 20,000 sq ft of its existing operations.

“Aemulus is also allocating 6,000 sq ft for the Leap-O-Pad programme, which is part of the local government's initiatives to build up a startup ecosystem. The programme encompasses startup accelerators, mentorship and provision of laboratory and workstations,” it said.

CIMB Research noted that Aemulus plans to invest about RM25m over the next three years in the research and development of new tester equipment and also for the land's acquisition cost.

Management plans to finance the expansion through internal funds and bank borrowings.

“We are not overly concerned on the funding issue given that Aemulus still has a net cash of RM26.7mil as at Sep 2016. Although it could incur finance cost from higher borrowings, this will be offset from the rental costs saved.

“The global semiconductor market research group, SEMI, projected worldwide semiconductor equipment sales to grow 9.3% in 2017 (vs. 8.7% in 2016), primarily due to strong demand for wafer processing equipment. Growth should be mainly driven by robust demand from developed markets such as North America, Europe and South Korea.

“Meanwhile, Gartner is also projecting stronger 7.2% industry sales growth in 2017 (vs. 1.5% in 2016), driven by inventory replenishment and higher average selling prices,” said the research house.

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