Aemulus still in the red, expected to just break even

KUCHING: Aemulus Holdings Bhd’s (Aemulus) earning before interest and tax ( EBIT) in its third quarter financial year 2016 (3QFY16) has slipped into the red with revenue falling to RM5.5 million at a decline of 57 percent year over year (YoY).

The research arm of Affin Hwang Investment Bank Bhd (Affin Hwang Capital) expects Aemulus to just breakeven in FY16 at core level.

The research arm noted that lower product sales from sluggish demand in Aemulus’s automated test equipment (ATE) has influenced the declining revenue.

“Its ATE segment disappointed on slower than expected sales from China, one of its key markets, while the lack of new products introduction is unlikely to catalyse demand growth in near term,” said the research arm.

Moreover, geographical diversification has remained slow with the research arm expecting longer gestation periods for greenfield markets like Taiwan due to overwhelming competitive forces which has further contributed to declining revenue rates.

Overall, the research arm has reported that the declining performance has been outside their expectations as Aemulu’s ninth month financial year 2016 (9MFY16) only made up 62 per cent of their previous estimates.

This may seem contradictory as Aemulus booked a headline profit of RM0.5 million for 3QFY16, however it mostly comprised of higher interest income of RM0.2 million and forex gains of RM0.3 million.

“In other words, third quarter profit was contributed wholly by non-operational items,” said the research arm.

Excluding forex gains, Aemulu’s core net profit would fall to RM0.2 million which would bring 9MFY16’s core net loss to RM0.4 million.

As a result, the research arm has decided to cut forecasts of Aemulu’s FY16 core net profit to RM1.0 million from RM5.1 million and expect Aemulus to just break even in FY16 at a core level which would be dependant on mostly sequential recovery in the fourth quarter.

It should be noted that the risks to these forecasts are the potential of Aemulus slipping into a full year headline net loss if fourth quarter numbers continue to fall, which in turn could pressure its share price to fall below the IPO price of RM0.28 sen and it’s all time low of RM0.275 sen.

The research arm is remains concerned over the long term prospects of Aemulus and has decided to maintain their sell rating on the stock with a target price of RM0.20 per share.