Aurelius Technologies or ATech, a global Electronics Manufacturing Services (EMS) provider for industrial electronics products could trade at a fair value (FV) of RM1.73 upon listing, higher than the IPO price of RM1.36/share.
The stock is scheduled for listing on the Main Market of Bursa Malaysia Securities on December 16. is derived by pegging 18x price to earnings (P/E) to its FY23F earnings per share of 9.6 sen, RHB said.
“The P/E implies a 5-20% discount from the valuations we ascribed to the EMS stocks under our coverage, given ATech’s relatively smaller market capitalisation and profit base. This is in line with the current average of its peers’ market valuations,” it says.
“We chose not to widen the discount gap further, to take into account ATech’s relatively faster earnings growth – we forecast a 3-year net profit CAGR of 36%, which is higher than the 18% and 20% forecasted for SKP Resources (SKP MK, BUY, TP: MYR2.40) and VS Industry (VSI MK, BUY, TP: MYR2.01).”
In addition, its exposure to the semiconductor sector and zero-reliance on foreign labour should also render its risk-reward profile more compelling than that of the typical EMS peer – the former should strengthen margins whilst the latter spares ATech from migrant worker-related issues.
“We are generally positive on the EMS sector, premised on the robust job flows – underpinned by the established expertise of the local players and availability of a complete supply chain,” the research firm says.
It adds that this facilitates an efficient cost structure and solid execution, which should entice more customers to expand their manufacturing sources to Malaysia.
Meanwhile, the cost-plus model commonly practised in the EMS business is also attractive under the current environment of rising costs. Such growth dynamics will be appreciated by the investors seeking growth amidst a challenging broad environment, which in turn would drive a valuation rerating.
