Mercury Securities has initiated its coverage on Aurelius Technologies Berhad with a “BUY” recommendation with a target price (TP) of RM2.22 based on FY24F EPS of 11.9 sen and a PE of 18.7x, in line with the 5-years average of its EMS peers. The stock is recommended a “buy” rating for its attractive expansion plans, customer portfolio diversification from a high-mix-low-volume to medium-mix-medium-volume business, and solid track record. The target price represents a potential return of 29.8% from the current price.
One-stop integrated EMS provider. Aurelius is a one-stop integrated electronic manufacturing service (EMS) provider, capable of offering an end-to-end EMS solution from concept to high volume board assembly up to finished products. The company is able to provide services which requires a high technical know-how such as performing complex integrated RF testing, carrying out high melting point and gold soldering for PCBA. With the completion of its 61,909 sq ft plant 3, the company now has a total manufacturing floor space of 132,821 sq ft, increasing its capacity to cater for more orders from its existing and pipeline of new customers.
Additional SMT lines to support growth. In March 2022, the company commenced production for its newly acquired Customer F involved in the multicomponent IC (MCIC) business, after completing the installation of 4 fully automated SMT lines in its existing plant 2. The company plans to dedicate at least 8 SMT lines to cater for more orders from this customer, where the remainder 4 lines is expected to be fully installed within 4Q23 and 1Q24. With 8 SMT lines dedicated for this customer, this will increase its production capacity and profitability. It is expected a full year revenue recognition on the 8 SMT lines in FY24, and there may be any potential land acquisition moving forward to increase capacity and cater for more orders from its existing and pipeline of new customers. We think that margins for this customer will be relatively higher with the consignment of raw materials.
Investment into technology. The company plans to upgrade its manufacturing facilities towards Industry 4.0 which involves the automation of its production lines and automated material handling for its EMS business operations. This would increase the company’s productivity and control its labour cost going forward.
Solid order book and track record. The company has an order book of approximately RM504m, expected to be fully recognized by March 2024. Aurelius is headed by CEO Loh Hock Chiang who has more than 28 years of experience in the EMS industry. Collectively, the management team has an average industry experience of 29 years, supported by a long-serving technical team to spearhead the business going forward. Main Stream Holdings shareholders appears to be
committed with the appointment of Ms Jamie Lee Hwe Ping, daughter of deceased founder Mr Lee Chong Yeow, as the non-independent non-executive director and Jonathan Lee Ming Chian as the alternative of Ms Jamie Lee.
Risk factors. (1.) Failure to secure orders from customers (2.) Raw material shortages arising from supply chain disruptions.
