Markets
AEM-WA’s high valuation due to traders’ confidence
Alan Voon 
In its latest annual report, the company indicated that the printed circuit board market in Malaysia is shrinking following a few giant electronics companies moving their manufacturing plant and orders to countries such as Vietnam and Thailand
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AE Multi Holdings Bhd saw the entry of Apex Equity Holdings Bhd executive director Lim Teck Seng emerging as substantial shareholder in August after acquiring 18.46 million shares or a 6.2% stake in the company.

Lim was subsequently appointed to the board of directors on Sept 21. The share price of AEM, which had remained in a tight range of between 16 and 19 sen in the last few months, closed at 16.5 sen on Nov 15 while its warrant AEM-WA ended at 7.5 sen.

AEM Group’s principal activity is in the manufacture and sale of printed circuit boards (PCB) and related products. It is also involved in the sourcing and reselling of PCB and related products, electronic and telecommunication components as well as the manufacturing of cartridge ink and related products.

The group set up its first manufacturing plant in Sungai Petani, Kedah. Subsequently in 1999, it expanded its production facilities to Thailand to set up its second manufacturing plant in Bangkok’s Bangpoo Industrial Estate.

 

Downsizing PCB plant

In its latest annual report, the company indicated that the PCB market in Malaysia is shrinking following a few giant electronics companies moving their manufacturing plant and orders to countries such as Vietnam and Thailand.

Due to the uncertainty ahead in PCB market, the AEM Group is gradually downsizing its PCB plant and relocating to Thailand. It is also taking this opportunity to upgrade several manufacturing equipment to enhance its manufacturing capacity in its Thailand plant.

To be in line with its aim to secure a larger market share, the group is strategising to penetrate into the high-end single-sided PCB market. It expects the Thai market to continue to spur its revenue growth.

In the first half of this year (H1FY17), AEM recorded a revenue of RM33.52 mil which is a 40% increase from RM23.87 mil achieved in the corresponding period of the previous financial year. Its second quarter (Q2FY17) growth was particularly impressive, gaining 24% as compared with Q1FY17 and 51% higher than Q2FY16.

However, net profit for H1 is lower at RM70,000 compared to RM820,000 in H1FY16 due to the recovery of bad debts of RM1.13 mil in FY16.

AEM stated in its results note that in light of the positive results and significant increase in sales order, the group foresees that it will be a very busy season ahead with increased market share from the newly captured orders from a major competitor. It is therefore optimistic that the group’s performance will be positive this year.

AEM-WA is trading at a high premium of 97%. The warrant is also expensive in terms of theoretical valuation as its implied volatility exceeds the mother share’s historical volatility by quite a lot.

Such high valuation may be due to traders buying the warrant ahead of strong growth expected ahead. Nevertheless, more conservative investors would be better off buying the mother share directly. 

The writer is CEO of Warrants Capital Sdn Bhd



This article first appeared in Focus Malaysia Issue 259.