Aemulus poised for turnaround in 2017 after dismal 2016

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KUCHING: Aemulus Holdings Bhd (Aemulus) is poised to witness a turnaround in its financial performance for 2017 after a dismal 2016.

The research arm of CIMB Investment Bank Bhd (CIMB Research) in a recent strategy report said it expected Aemulus to return to the black in financial year 2017 (FY17) ending September 2017.

The research firm opined that the improved financial performance of the group next year would be driven by the group’s portfolio of new tester products in communication and automotives segments after the company registered a net loss of RM2.74 million in FY16 ended September 2016.

Following a meeting with the company, CIMB Research said, “(The company’s) management remains optimistic for a stronger recovery in FY17 driven by robust demand in China, new tester portfolio and pick-up in customer replacement cycle.

“We expect Aemulus to return to profitability in FY17, driven by new tester product launches and a recovery in enterprise storage tester demand.”

CIMB Research believed that the Chinese market could be a potential bright spot for Aemulus to generate more sales next year.

It observed that the group has set up a new regional office for China and Taiwan this year as part of the company’s efforts to be closer to its key clients.

The research firm opined that the group is starting to see good traction from the venture given that the company has recorded 70 per cent revenue growth from the China market in FY16.

Going forward, CIMB Research said the company expected another double-digit revenue growth in its operations in China for FY17.

The research firm gathered that the Chinese market would continue to be Aemulus’s top three markets in terms of size in 2017.

Hence, it opined that the company’s move to set up a regional office there should bode well for the group’s strategy to grow in China.

Apart from that, CIMB Research foresees the automotive segment to be Aemulus’s new revenue growth driver on  the back of rising adoption of electronic components in vehicles.

Citing findings from leading semiconductor market research analysis firm, IC Insights, CIMB Research said the research analysis firm projected the automotive market for semiconductors to grow at a compounded annual growth rate (CAGR) of 4.9 per cent from 2015 to 2020.

Nonetheless, it noted Aemulus is still committed to expand the company’s radio frequency (RF) testing solutions given that it is in the midst of developing a new tester for wireless communications in the higher frequency band.

The research firm believed the development of a new tester would position Aemulus for market opportunities that demand high frequency such as automotive, radar and 5G wireless technology.

On a larger picture, CIMB Research observed that global semiconductor market research group, Semiconductor Equipment and Materials  International (SEMI) projected worldwide semiconductor equipment sales to grow by 9.3 per cent in 2017 against  8.7 per cent in 2016 due to strong demand for wafer processing equipment.

The research firm noted growth should be driven by robust demand from developed markets such as North America, Europe and South Korea.

Nonetheless, it pointed out that SEMI forecasts growth for testing equipment to be lower than the semiconductor industry at three per cent in 2017.

Meanwhile, CIMB Research observed that Aemulus’ revenue for FY16 fell by 33 per cent year-on-year (y-o-y) to RM22 million due to lower sales volumes of tester on customer concerns over a slowdown in demand for the semiconductor industry.

Elaborating further, the research firm said the group’s revenue from the enterprise storage segment fell by 81 per cent y-o-y to RM2.1 million while revenue from the smartphone and tablets segment was slightly higher by 0.2 per cent y-o-y.

CIMB Research added the group’s earnings was lower due to higher operating expenditure as a result of increased cost for additional staff.

With higher expenditure and lower revenue, the research firm noted that the group posted a core net loss of RM0.7 million in FY16 as compared to a net profit of RM8 million in FY15.

In spite of the disappointing results in FY16, CIMB Research believed the company could stage a turnaround in financial performance next year supported by strong sales in China and more demand of new tester for  products in communication and automotives segments.