Aurelius Technologies has on 13th January 2023 signed the acceptance of the letter of offer from Northern Technocity Sdn Bhd for the purchase of a vacant industrial land measuring approximately 301,874 sq ft, located within Kulim High-Tech Park.
Note that Aurelius Technologies Bhd (Aurelius) is a principal provider of electronic manufacturing services with a focus in industrial electronic products. The company has expanded its activities into manufacturing of semiconductor components in the form of multicomponent integrated circuit for internet of things applications.
To address the constraint in the manufacturing floor space and continued business growth through the acquisition of 4 new customers in financial year 2023 and rollout of net profits interest for existing and new customers, the company intends to build a new manufacturing plant 5.
According to Mercury Securities in the latest Update report, 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 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 will double 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 outsourced semiconductor assembly and test 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 surface mount technology lines (compared to 17 lines of current 260,357 sq ft plant 1,2, and 3).
“Valuation / recommendation results were above expectations, achieving 116.0% and 108.3% of our full year revenue and profit forecasts for financial year 2023 respectively,” said Mercury Securities.
Revenue for the quarter was quarter-on-quarter stronger, driven by the ramping up of operations in plant 3 and new production lines, enabling the group to increase overall production volume and revenue across all business segments.
“We maintain a buy recommendation on Aurelius with a revised trading price of RM3.55 (up from RM3.02) based on financial year 2025 future earnings per share 18.7 sen and a price to earnings ratio of 19x in line with its peer’s 5-year historical average,” said Mercury Securities.
Mercury Securities favours the stock for its attractive expansion plans, customer portfolio diversification from a high mix-low-volume to medium-mix-medium-volume business, and solid track record.
In March 2022, the company commenced production for its newly acquired Customer F involved in the multicomponent integrated circuit business. As of December 2022, 6 fully automated surface mount technology lines have been commissioned for this customer in its existing plant 2.
Utilising its initial public offering proceeds, the company has ordered line 7 to further ramp up the production capability for Customer F. The surface mount technology line is expected to arrive by February 2022.
“Our estimates assume second half of 2023 to be stronger on the back of higher contributions from customer F, bolstered by increased order uptake with the 6th surface mount technology line fully installed and running at full steam, and better efficiency and output with the implementation of the new conveyor system,” said Mercury Securities.
The company plans to dedicate at least 8 surface mount technology lines to cater for more orders from this customer, where the remaining 2 lines are expected to be fully installed by quarter one financial year 2024. With at least 8 surface mount technology lines dedicated for this customer, this will increase its production capacity and profitability.
“We expect a full year revenue recognition on the 8 surface mount technology lines in the financial year 2024. We think that margins for this customer will be relatively higher with the consignment of raw materials,” Mercury Securities said.
The newly leased plant 4 warehouse will be used to store raw materials, easing some capacity in plant 3. The company plans to utilise the proceeds from its private placement to acquire 2 additional surface mount technology lines for plant 3, each for general purposes and new product initiative.
The surface mount technology lines are expected to provide an additional production capacity of 61% per annum for products other than semiconductor components. 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 electronic manufacturing services business operations.
This would increase the company’s productivity and allow better control on its labour cost going forward. The company has an order book of more than RM275 million as of March 2023, expected to be fully recognized by financial year 2024.
Aurelius is headed by CEO Loh Hock Chiang who has more than 28 years of experience in the electronic manufacturing services 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.
The company has recently appointed Jamie Lee Hwe Ping, daughter of deceased founder Lee Chong Yeow, as the non-independent non-executive director and Jonathan Lee Ming Chian as the alternative of Jamie Lee.
Risk factors identified by Mercury Securities are the failure to secure orders from customers and raw material shortages arising from supply chain disruptions.
