Aurelius Technologies Berhad - Soft Quarter, recovery back-end loaded Soft Quarter, recovery back-end loaded
Wed, 03-Jun-2026 08:26 am
by Research Team • Apex Research

Counter

ATECH (5302)

Target Price (RM)

0.87

Recommendation

Buy

  • ATECH delivered 1QFY26 core earnings of RM8.2m (-46% YoY, -56% QoQ), coming in at just 11% of our and consensus FY26F forecast of RM73.2m. The shortfall was driven by USD/MYR weakness, selective supply chain disruptions (gold, memory shortages) and gross margin compression to 12.0% (4QFY25: 15.6%).

  • Management flagged a more measured recovery with the meaningful inflexion expected after mid-year. GP margins may stay pressured on operational cost headwinds (component costs, human capital), though order replenishment is expected to improve from 2QFY26. No material rescheduling or cancellation of existing orders.

  • Cut FY26F/27F core net profit forecasts by 22%/16% to RM57.0m/RM67.6m and introduce FY28F forecast of RM73.7m. Maintain BUY with a lower TP of RM0.87 (from RM1.00) – based on an unchanged PE valuation applied to our rolled-forward FY27F EPS of 4.8 sen. 

Results Miss. ATECH delivered 1QFY26 core net profit of RM8.2m (-46.3% YoY, -56.3% QoQ), coming in materially below our and consensus' expectations at just 11% of full-year forecasts of RM73.2m, versus historical 1Q seasonality of c.20% of FY contribution. The reported PATAMI of RM9.2m was arrived at after adjusting out non-cash items including an unrealised forex gain (RM1.9m) and a fair value loss on short-term investments (RM1.0m). The miss versus our prior expectations was driven by (i) a sharper-than-expected revenue contraction stemming from the persistent USD/MYR weakness which translated billed USD revenue into a smaller RM equivalent, alongside selective supply chain disruptions affecting parts availability, (ii) gross margin compression to 12.0% (1QFY25: 15.2%, 4QFY25: 15.6%) on the combination of FX dilution, rising labour costs and weaker fixed cost absorption from lower volume throughput, and (iii) administrative expenses of RM6.3m (+24% YoY) which management attributes mainly to forex-related losses booked through opex rather than underlying cost inflation.

 

QoQ. Revenue and core PATAMI dropped 20.9% and 56.3% sequentially from a high 4QFY25 base (RM164.8m revenue, RM18.8m core), consistent with the group's seasonality pattern where 4Q is typically the strongest quarter and 1Q the softest. The sequential decline was steeper than last year's 1Q-vs-4Q drop of just 7.8%, although management noted that 1QFY25 was an unusually strong base – making this year's decline partly a normalisation rather than a demand deterioration signal. Gross margin slipped to 12.0% (4QFY25: 15.6%) on persistent USD/MYR weakness, while a RM3.6m realised forex loss and fewer effective working days (Chinese New Year, Ramadan) further weighed on profitability.

 

YoY. Revenue fell 11.8% YoY to RM130.4m, with all three legacy segments softer: Communication & IoT products (-9.6% to RM112.6m; 86.4% of group), Electronics devices (-41.0% to RM9.0m; 6.9%) and Semiconductor components (-34.9% to RM5.2m; 4.0%). Management attributed the decline to sluggish underlying demand and selective supply chain disruptions – notably shortages in critical raw materials (gold, memory) – rather than order rescheduling. Partially offsetting, the newly-disclosed automotive segment contributed maiden revenue of RM3.6m (2.7% of group) from initial TPMS and IoT auto-module ramp. Core net margin compressed to 6.3% (1QFY25: 10.3%) on USD/MYR translation drag, difficulty passing through component cost inflation in a weak USD environment, and rising labour costs driven by the Kulim mega-plant construction cycle intensifying regional talent competition. Geographically, Americas remained the largest market at RM83.0m (-5.8% YoY), while Asia-Pacific ex-Malaysia and Europe declined 34.9% and 16.3% respectively.

 

Dividend. Declared first interim DPS of 0.65 sen for FY26 (1QFY25: 3.60 sen), payable 7 July 2026 for an amount totalling RM8.5 million.

 

Balance sheet and cashflow. Despite weaker earnings, operating cash flow surged to RM30.4m (1QFY25: RM9.3m) on a meaningful working capital release – trade receivables declined RM23.6m to RM123.2m and inventories eased to RM107.0m. Financing activities consumed RM46.6m, comprising the full repayment of all bankers' acceptances/OFCL (RM34.3m) and the FY25 third interim dividend (RM12.4m), while investing activities generated a net RM11.1m primarily from short-term investment liquidation. ATECH ended the quarter debt-free, with cash plus short-term investments of RM200.1m (end-FY25: RM216.4m; 4QFY25 net cash: RM182.2m post borrowings) – equivalent to c.RM0.15/share. Working capital metrics improved: inventory days fell to c.85 (FY25: c.90) and receivables days to c.86 (FY25: c.95). Capital commitments eased to RM15.4m (end-FY25: RM17.6m), signalling moderating capex intensity post-P5. 

 

Outlook. Management is cautiously optimistic on FY26 but flagged a more measured recovery, with the meaningful inflexion expected after mid-year. Order replenishment remains sluggish though no material rescheduling or cancellation has occurred – the softness reflects supply chain disruptions, particularly shortages in gold (PCB) and memory components. Price adjustments are ongoing but tempered by competitiveness considerations amid a stronger MYR, while GP margins may stay pressured on operational cost headwinds (component costs and human capital). 2QFY26 should improve sequentially, with NPI commercialisation from prospect customers expected after 2Q26. On automotive, audits for new end-customers continue alongside commercial production ramp for already-qualified customers. On precision plastics, factory layout planning targets end-June / mid-July completion with construction commencing late-4Q26; initial NPIs are already running at a partner plant to internalise the group's annual plastic parts purchases.

 

Earnings Revision. We cut FY26F/27F core net profit by 22%/16% to RM57.0m/RM67.6m (fromRM73.2m/RM80.0m), reflecting persistent component shortages, sustained GP margin pressure from operational cost headwinds, and a slower automotive ramp on customer-side supply issues. We also introduce our FY28F core net profit forecast of RM73.7m. In terms of recovery profile we expect: 2QFY26 modest improvement, 3QFY26 broadly stable, 4QFY26 meaningful step-up on NPI commercialisation, automotive ramp and year-end customer budget execution.

 

Valuation. Post adjustments, Maintain BUY with a lower TP of RM0.87 (from RM1.00), based on an unchanged PE multiple applied to our rolled-forward FY27F core EPS of 4.8 sen justified by (i) commendable core net margin profile of c.10%+ historically vs industrial EMS peers, (ii) strong net cash position of RM200m sustaining a 3% dividend yield, and (iii) optionality from automotive ramp, new customer pilot lines, and precision plastics upstream diversification. At RM0.79, the stock trades at 19.8x FY26F and 16.5x FY27F core PE. Near-term earnings visibility remains constrained, but we believe the current price largely reflects these headwinds. Catalysts: 2QFY26 sequential improvement, NPI commercialisation, automotive ramp progress, and precision plastics construction commencement. 

 

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