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Aemulus to gain from China semiconductor boom

KUALA LUMPUR: Aemulus Holdings Bhd stands to benefit from the semiconductor boom in China as the country plans to localise 70% of US$300bil (RM1.27 trillion) worth of semiconductor goods.

The company made inroads in the Chinese market last year via a joint venture with Tangren Microtelligence Technology Co Ltd, giving it exposure to China’s semiconductor supply chain.

Under the joint venture, a new facility in Jiashan, China will expand Aemulus’ capacity by three times. The facility is expected to commence operations by the end of this year.

In a recent report, RHB Research highlighted that this distinctive value proposition from its stake in China could provide the company with a quantum-leap in profit and a re-rating in valuation. The research house opined that Aemulus could be a potential multi-bagger trading at a discount.

Aemulus factory in Malaysia - File picAemulus factory in Malaysia - File pic

“The current 26 times forecast financial year 2022 (FY22) price earnings ratio is lagging peers in the automated test equipment (ATE) space (30-50 times) and Bursa Malaysia Technology Index (KLTEC).

“With an earnings turnaround, Aemulus’ valuation should catch up or even surpass bigger cap peers given its above industry growth prospects and unique exposure to China’s semiconductor supply chain,” RHB said.

Aemulus is involved in the design and development of test and measurement instruments, provision of design consultancy and test-related services. Its tester is primarily used in the signal testing for smart devices, tablets, Internet of Things (IoT) and automotive related products.

According to SEMI, the semiconductor test equipment segment is expected to grow 26% in 2021 to US$7.6bil (RM32.12bil), and 6% in 2022, buoyed by demand from 5G and high performance computing applications.

RHB noted that earnings growth for Aemulus will be underpinned by its all-time high order book of over RM40mil and margin expansion thanks to the higher operating leverage, aided by growing revenue base relative to its stable SG&A (selling, general and administrative expenses).

“We understand that order flow is robust not only in Taiwan and China, but also the rest of the world amid healthy capex spending within the semiconductor supply chain,” it said.

Chip demand is expected to remain robust, underpinned by the on-going acceleration in digitalisation. The World Semiconductor Trade Statistics organisation’s forecast for global semiconductor sales to grow 19.7% year-on-year to US$527.2bil (RM2.23 trillion) in 2021.

“Further upside could stem from the estimated intellectual property (IP) rights of around RM200m (or RM0.33 per share) that Aemulus could potentially monetise via an IP sale,” RHB added.


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