10 things to know about Aurelius Technologies Berhad before you invest

Electronics manufacturing services (EMS) provider Aurelius Technologies Berhad (“ATech”) (KLSE: ATECH) made a strong debut on the Main Market of Bursa Malaysia on 16 December 2021. Shares closed at 47 sen, up 34.6% from its initial public offering (IPO) price of RM1.36. 

The IPO is expected to give the group more visibility and aid in the expansion of the business. If you are looking at ATech with interest, here are 10 things to know before you invest.  

1. Business activities

ATech is an EMS provider focusing on electronic products. During the financial year ended (FYE) 31 January 2020, the company expanded into the manufacturing of semiconductor components comprising multicomponent integrated circuit (IC) for Internet of Things (IoT) applications and the mass production of these semiconductor components commenced during the FYE 31 January 2021.

As an EMS provider, ATech offers a range of contract manufacturing services, including engineering support services, prototyping, board assembly, mechanical assembly, testing, labelling, packaging and direct shipment fulfilment. ATech also provides EMS for printed circuit board assembly (PCBA), subassemblies, box build and system build products. 

ATech’s business model is as follows:

(Source: IPO prospectus)

2. Product categories

ATech provides EMS for the following product categories:

Product  Application
Communications and IoT products
  • Subassemblies for communication devices and accessories;
  • Box build for communication devices and accessories as well as IoT wireless and asset tracking devices; and
  • System build for train communication interface units.
Electronic devices
  • PBCA for telematics instrumentation, power management and control devices, power converters, lighting control units, lighting systems, and radio-frequency generator;Subassemblies for power and energy management and control devices; and
  • Box build products for telematics instrumentation, power and energy management and control devices, and optoelectronic devices
Semiconductor components Multicomponent IC, namely IoT module

Its revenue by product categories are as follows: 

(Source: IPO prospectus)

3. Principal markets 

ATech’s customer base is spread across eleven countries covering Asia Pacific, the Americas and Europe. The top three countries by revenue contribution were the USA, Malaysia and Singapore, which collectively accounted for 93.6%, 92,7%, 89.3% and 88.5% of its revenue for the FYE 31 January 2019, 31 January 2020, 31 January 2021 and the financial period ended (FPE) 31 August 2021 respectively. 

4. Major customers and distribution channels

Major customers

ATech’s five major customers and their contribution to its revenue in terms of amount and percentage for the FYE 31 January 2021 are as follows. Concentration risk is high and the loss of a major customer can severely impact its financial performance. 

Distribution channels

ATech uses both direct and indirect distribution channels for its sales and marketing activities. Revenue from the direct and indirect distribution channels represent 63.9% and 36.1% of its revenue for the FYE 31 January 2021. 

The company mainly uses the direct distribution channel where it markets and secures contracts directly with customers who are mainly brand and/ or product owners. This allows the company to be involved in the early stages of any new product development or product enhancement. Working closely with customers also enables better production planning and scheduling to optimize machine and equipment usage particularly for new projects. 

Conversely, the company uses the indirect distribution channel where its customers are mainly EMS companies, and where its products represent a part of their finished products. 

5. Future plans and strategies 

ATech’s future plans and strategies are set out below:

a. Expansion into semiconductor component manufacturing

The company envisages having a total of seven production lines dedicated to semiconductor component manufacturing for a major customer by the end of 2023 to cater to its increased demand; 

b. Expansion of its production facilities

(i) Construction of a new manufacturing plant: ATech has commenced the construction of a new manufacturing plant on the vacant land of approximately three acres, adjacent to its existing manufacturing plant. The new single-storey manufacturing plant’s footprint is 61,909 sq. ft., and will be used for the expansion of its EMS operations as well as development of a new product, namely lithium-ion battery pack system for light vehicles.

(ii) Purchase of new machinery and equipment: The company has installed two production lines in 2021 and intends to further expand its production facilities and invest in four new production lines to cater to the business expansion and growth of its EMS services. 

c. Upgrade its manufacturing facilities towards industry 4.0

ATech plans to upgrade its manufacturing facilities by adopting automated material handling system and undertaking development and implementation of customised software and systems for factory automation.

d. Introduction of new products

The company plans to manufacture lithium-ion battery pack systems for use in light vehicles. It is working in collaboration with a third party for the development phase of the lithium-ion battery pack systems. 

6. Use of IPO proceeds

The gross proceeds arising from the IPO of approximately RM104.7 million will be utilised in the following manner: 

(Source: IPO prospectus)

7. Competitive landscape

The EMS industry in Malaysia is diversified where electronics manufacturing companies produce a wide range of products from electronic components, modules, devices and up to systems across various industries. 

The following table is a list of some of the EMS providers in Malaysia, listed in descending order of revenue within their respective categories.

(Source: IPO prospectus)

8. Financial highlights

The following table sets out the financial highlights of the group for FYE 31 January 2019 to 31 January 2021 and FPE 31 August 2021: 

(Source: IPO prospectus)

ATech targets a dividend payout ratio 20% of its profit after tax (PAT) attributable to owners of the company. The following table sets out the dividend declared and/or paid for the previous financial years / period: 

(Source: IPO prospectus)

9. Promoters and substantial shareholders 

The promoters and substantial shareholders in the group are set out below:

(Source: IPO factsheet)

Mr. Lee Chong Yeow @ Lee Chong Yan is the company’s chief executive officer. He oversees the company’s overall manufacturing services and day-to-day operations. 

Mr. Loh Hock Chiang is the company’s chief financial officer. He is responsible for overseeing the overall finance function.  

10. Current valuation  

With a closing share price of RM2.27 as at 28 December 2021, ATech is currently trading at a market capitalisation of RM813.1 million (based on enlarge number of shares of 358.18 million). This translates to a price earnings ratio (PE) of 53.8 times (based on FYE 31 January 2021 profits). 

ATech has not been able to growth its revenue and profits in recent years. Revenue has only increased slightly by 1.1% while profits have tumbled 36.8% over FYE 31 January 2019 to FYE 31 January 2021. 

Its cash flow from operations is not consistent which is a concern; but its gearing level should improve with the funds raised from its listing.  The company’s valuation is rich so investors should wait and monitor if the management can execute its business plans and deliver on its commitments. 

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