Results of Aurelius Technologies were within expectations, achieving 83.0% and 70.8% of Mercury Securities’ full year revenue and profit forecasts for financial year 2023 (FY23) respectively, supported by the ramping up of operations in plant 3, enabling the Group to increase overall production volume and revenue across all business segments.
Mercury has revised its forecast for financial year 2023 (FY24F) revenue and earnings upward by 12.4% and 12.5% on the back of higher contributions from its existing and pipeline of new customers as a result of ramping up of operations across its existing factories going forward. Hence, the research house has maintained a BUY recommendation on Aurelius with a revised target price (TP) of RM3.02 based on FY24F earnings per share (EPS) 16.8 sen and a price-earnings ration (PE) of 18x in line with its peer’s 5-year historical average.
The research house put up a BUY recommendation based on its attractive expansion plans, customer portfolio diversification from a high-mix-low-volume to medium-mix-medium-volume business, and solid track record.
New capacity in place. The company currently has a total manufacturing floor space of 132,029 sq ft, with the completion of its 64,563 sq ft plant 3 in March 2022, and a 46,320 sq ft newly leased plant 4 which is primarily functioned as a warehouse for light assembly works (if required) to complement its existing manufacturing plants. The company had on January 13, 2023 signed the acceptance of the letter of offer (LO) from Northern Technocity for the purchase of a vacant industrial land measuring approximately 301,874 sq ft, located within Kulim High-Tech Park.
To address the constraint in the manufacturing floor space and continued business growth through the acquisition of 4 new customers in FY23 and roll-out of NPI for existing and new customers, the company intends to build a new manufacturing plant 5. The new plant will house another 165,000 sq ft of manufacturing floor space with a 50,000 sq ft ISO 8 Class 100,000 clean room, which is more than doubled the capacity of its existing space.
The clean room facilities will support the company’s aspirations to foray into manufacturing of advanced electronic components and OSAT for its existing customer’s automotive industry product range. The plant is intended to undertake manufacturing activities for multiple customers of the company and have the capacity to fit at least 15 SMT lines (comparing to 17 SMT lines of current 260,357 sq ft plant 1,2, and 3).
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. As of December 2022, 6 fully automated SMT lines have been commissioned for this customer in its existing plant 2.
Utilizing its IPO proceeds, the company has ordered line 7 to further ramp up the production capability for Customer F. The SMT line is expected to arrive by February 2022. Mercury’s estimates assume second half of 2023 (2H23) to be stronger on the back of higher contributions from customer F, bolstered by increased order uptake with the 6th SMT line fully installed and running at full steam, and better efficiency and output with the implementation of the new conveyor system.
The company plans to dedicate at least 8 SMT lines to cater for more orders from this customer, where the remainder 2 lines is expected to be fully installed within 4QFY23 and 1QFY24. With at least 8 SMT lines dedicated for this customer, this will increase its production capacity and profitability. Therefore, it is expected that a full year revenue recognition on the 8 SMT lines in FY24. Mercury holds the view that margins for this customer will be relatively higher with the consignment of raw materials.