We ceased coverage on Aemulus due to reallocation of resources. Our last recommendation was a SELL with a TP of RM0.15. Aemulus fared better in 2Q bolstered by stronger-than-expected revenue growth, largely due to higher orders fulfilled from the ATE segment. Core earnings of RM2.5m came in slightly ahead of our FY17 estimates of RM4m.

Higher Revenue From Malaysia

Aemulus’ 2Q revenue grew 38% to RM10.8m, predominantly bolstered by higher sales order fulfilled for its ATE segment during the quarter. Management guided that the increase in revenue was largely attributed to the growth in the enterprise storage, smartphone and tablet market segments. In terms of country breakdown, Malaysia, Singapore and USA market grew strongly but this was weighed down by lower orders from China.

Earnings Rebound

Aemulus booked in a core net profit of RM2.5m, in line with the higher revenue registered. GP margin stayed largely unchanged, likely due to similar product mix. The higher GP was however offset by higher R&D expenses, as well as administrative expenses, likely due to higher headcount. Overall, 1H17 core earnings of RM2.5m came slightly in ahead of our full-year estimates of RM4m.

Ceasing Coverage

Aemulus earnings may have turned the corner, but valuations look to have run ahead of fundamentals at calendarised 53x CY17E EPS. Aemulus’ earnings have been volatile over the past few quarters with inconsistent sales growth, which leads to earnings forecast risk. We ceased coverage on Aemulus due to reallocation of resources. Our last recommendation was SELL with a TP of RM0.15.

Source: Affin Hwang Research - 19 May 2017