Aurelius Technologies (ATECH) quarter one financial year 2024 core net profit (CNP) of RM6.3 million came in inline with expectations, representing 13%/12% of Maybank Investment Bank (Maybank IB)/consensus full-year forecasts.
“We consider the results to be inline as we anticipate a stronger second half ahead, supported by the completion of customers’ destocking activities and improved margins resulting from increased utilisation,” said Maybank IB in the recent report.
Maybank IB maintains their forecasts and target price of RM2.61, based on a price-earnings ratio of 16.9x for their calendar year 2024 estimated earnings per share of 15.4sen, aligning with the industry’s 5Y historical average. Maybank IB maintains Buy.
ATECH’s quarter one financial year 2024 revenue declined by 6% year on year to RM94.6 million, primarily due to customers aggressively downsizing their inventories, resulting in lower production volume.
However, gross profit margin improved due to a better product mix, partially offset by non-economies of scale. CNP improved by 19% year on year, driven by effective cost control and lower finance costs.
“Quarter on quarter, its revenue plunged by 31% due to fewer working days, seasonal factors, and customers downsizing inventories. CNP was further affected, decreasing by 60% quarter on quarter, as margins contracted due to non-economies of scale,” said Maybank IB.
Zooming into segmental performances, only the communication and internet of things segment experienced a decline in sales year on year, down by 17% year on year, while the electronic devices segment grew by 54% year on year and the semiconductor segment more than doubled.
Quarter on quarter, all segments weakened due to fewer working days, seasonal factors, and customers’ destocking activities, as mentioned above.
“Despite the short-term challenges, we maintain a positive outlook for ATECH’s growth, with forecast 30% compounded annual growth rate in core earnings over the next three years. We anticipate that the current ongoing customer destocking will normalise in second half 2023, and group revenue recovery will be further supported by the company’s expansion initiatives and acquisition of new customers,” said Maybank IB.
Looking ahead, the longer-term outlook remains favourable, with ATECH well-positioned to benefit from the supply chain relocation trend as well as continuing efforts to diversify its customer portfolio.
As of 19 June 2023, ATECH’s order book has remained largely stable at RM288 million. This development is viewed positively as it suggests potential early signs of customers’ inventory levels normalising.
There are several risk factors for Maybank IB’s earnings estimates, target price and rating for ATECH. Key risks are such as the weaker-than-expected demand from customers in view of rising inflation and geopolitical risks, lower-than-expected costs pass through and operational disruptions from labour issues and/or component shortages.
