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♦️Aemulus stands out as a key beneficiary to the worsening US-China ties as Beijing poised to wean off dependency on US by producing up to 70% (from current 20%) of its chip demand domestically by 2025. Its 20-years JVA with Tangren (Aemulus 40:60 Tangren) was a key milestone for the company's expansion story in China. Tangren is not any tom dick and harry as they are indirectly owned by SMIC, which in time will be China home grown wafer foundry to rival giants like TSMC, noting that SMIC will likely be Huawei's dominant chip supplier (phasing out from TSMC) given mounting US restriction. Hence, Tangren will hold sway over how SMIC and its value chain select its tester equipment, which indirectly will benefit Aemulus over the long run.

♦️The symbiotic partnership will see both parties benefitting from the technological integration (front to back-end equipment supplier) and market share gain for the tester market in China and abroad. While Tangren specializes in the more front - end processes like the chips packaging machines, Aemulus forte lies in the back - end equipment like the testers. More importantly, the JVA also will be earnings accretive for Aemulus given that Tangren will be paying MYR3.4m for the transfer and use of Aemulus' IP (Intellectual Property) rights of its radio frequency (RF) tester.

♦️Aemulus also take great pride in its 5G tester capabilities, and most importantly well acknowledged by industry peers, evident by the JVA formed with China's Tangren. Its 5G tester (AMB 7600SR) along with its newly launched RF filter test (AMB7300) are expected to ride on the burgeoning demand for rising complexity of 5G/RF chip testing going forward. More so, RF filters is expected to register the steepest demand growth among the RF chip segment as filtering unwanted signals become even more crucial in the 5G phones. Unsurprisingly, Tangren is so keen to acquire Aemulus' IP rights of its RF tester, which is expected to capture the next explosive demand growth in terms of RF testing requirement.

♦️With 3QFY20 turned profitable on the maiden contribution from its RF and CMOS tester, Aemulus is set to ride on a long term growth story, piggy riding on giants like SMIC and other big Chinese OSAT players as well as the burgeoning 5G chip testing requirement. At a conservative MYR10m profit (protected by the growing IP licensing fee), Aemulus' 25x FY21 PER is undemanding versus its peers like Vitrox and Pentamaster which trades between 35-50x PER.  

**Disclaimer:* The sales view is purely a personal view, with information gathered through channel checks and public domain and do not represent the official views of RHB Investment Bank. This message is for information purposes for specific target audience i.e. Institutional Funds only. Reproduction or dissemination to third party and beyond is prohibited.
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