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Singapore Investment


Maybank IB upgrades EMS sector to ‘positive’ as bargain-hunting opportunities emerge

KUALA LUMPUR (Dec 19): Maybank Investment Bank Bhd (Maybank IB) has upgraded the technology sector for electronic manufacturing services (EMS) to "positive" from "neutral", with "buy" calls on VS Industry Bhd and Aurelius Technology Bhd.

The research house believed that values in the EMS sector have emerged, coupled with macro uncertainties which are showing signs of stabilising, a slowdown in interest rate hikes and an expectation of a mild recession — as opposed to a hard landing — for developed countries.

These are positive developments for local EMS companies as the western countries are one of the main sources of consumption for their locally assembled products, said Maybank IB in a note.

“In addition to the more accommodating macro outlook, the other supporting factors are the labour shortage issue having eased, coupled with robust E&E (electrical & electronics) manufacturing FDIs (foreign direct investments) as a result of MNCs’ (multinational companies') reconfiguration of their manufacturing supply chains to Asean from China. This creates ample opportunities for EMS companies locally to grow inorganically via wallet shares gain/new customers acquisition," it said.

Maybank IB said it preferred companies with exposure or capability in assembling industrial electronic products as demand is expected to be more resilient during an economic slowdown.

For the two companies under its coverage, the research house had set a target price of RM1.15 for VS Industry and RM2.07 for Aurelius.

At the time of writing on Monday (Dec 19), VS Industry’s share price was unchanged at 94 sen for a market value of RM3.58 billion, while Aurelius slipped 1.09% to RM1.82, giving it a market capitalisation of RM651.89 million.

“We expect EMS companies’ earnings under our coverage to rebound strongly by double digits in 2023,” it said.

Maybank IB also noted that Aurelius’ continuous expansion effort, new customers acquisition and diversification, growing exposure into higher value-added multi-component integrated circuits and its consignment basis business model for certain customers bode well for the group’s growth strategies, even under an increasingly challenging operating environment.

However, the research house identified a few risks for the EMS sector. These include weaker demand on a weakening economic outlook, lower costs pass through (as the mechanism depends on the company’s negotiation with its clients), persistent or recurrent operational disruptions from labour issues and supply chain disruptions, as well as market share loss to regional peers.


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