This article first appeared in The Edge Malaysia Weekly on October 7, 2024 - October 13, 2024

KEDAH-based electronics manufacturing services (EMS) provider Aurelius Technologies Bhd (KL:ATECH) is riding a wave of robust orders and gearing up for a potentially stronger financial performance this year, driven by its strategic focus on wireless communication technology and operational efficiency.

For its fiscal first half ended June 30, 2024 (1HFY2024), the company reported a profit of RM31.76 million on revenue of RM277.96 million, placing itself in a strong position to improve on last year’s results.

“Achieving good financial results is not just about the numbers. We also place a lot of emphasis on our strategic direction and operational effectiveness,” ATech executive director and CEO Loh Hock Chiang tells The Edge in an interview at the company’s headquarters in Kulim Hi-Tech Park.

“This year’s performance clearly reflects the successful execution of the initial stages of our core strategies. We are not just aiming to meet expectations but also striving to consistently exceed them and set new benchmarks.”

After a change in its financial year end from Jan 31 to Dec 31, ATech only had 11 months in its new financial year ended Dec 31, 2023 (FY2023). Over that period, the company made a profit of RM38.24 million on turnover of RM385.55 million.

According to Loh, ATech firmly believes in the potential of wireless communication technology and, despite the scepticism in some quarters, the company remains confident that wireless solutions will eventually become central to future connectivity needs.

“In today’s world, connectivity is essential for personal, business and security purposes. As communication complexity increases, so too the need for advanced wireless solutions. Our focus on wireless technology positions us well to meet this growing demand for connectivity solutions across industries,” Loh explains.

ATech is an investment holding company whose subsidiary BCM Electronics Corp Sdn Bhd is principally an EMS firm focused on industrial electronics products. In 2019, ATech expanded into the manufacture of semiconductor components in the form of multi-component integrated circuit (IC) for Internet of Things (IoT) applications.

It is one of the first companies in Malaysia to manufacture fifth generation (5G) communication modules and related applications for global clients.

ATech’s customer portfolio currently boasts more than 10 clients, including a global communication solutions giant. ATech  is one of three main contract manufacturers in the world producing top-tier communication devices used in critical public safety systems globally.

Loh, 59, is a chartered accountant with Chartered Accountants Australia and New Zealand and has held various positions, including chief financial officer (CFO) and deputy CEO of Comintel Corp Bhd, where his last designation was executive director, before he left in January 2018.

He assumed his current position of executive director of BCM in 2018 and was appointed group CFO of ATech in March 2021. Following the passing of ATech co-founder and former CEO Lee Chong Yeow in January 2022 — a month after the company was listed on Bursa Malaysia in December 2021 — Loh was made interim CEO before assuming the role of group CEO about seven months later in August.

As at April 9 this year, Loh owned a direct stake of 7.75% in ATech. Together with the late Lee, he had held an indirect stake of 39.4% in the company through Main Stream Holdings Sdn Bhd (20.04%) and Main Stream Ltd (19.36%).

Lee’s daughter Jamie Lee Hwe Ping currently sits on the board of ATech as non-executive director. Hwe Ping’s younger brother Jonathan Lee Ming Chian, who serves as her alternate director, is the administrator of their father’s estate. They each have a direct stake of 1.94% in the company.

ATech executive director and CFO Tan Chong Hin is a substantial shareholder of the company with 6.17% equity interest via Pixel Advisers Pte Ltd.

The company’s latest annual report shows that its top 30 largest shareholders include AIA Bhd and AIA Public Takaful Bhd, three Kenanga funds, Etiqa Life Insurance Bhd and Lembaga Tabung Angkatan Tentera (LTAT).

Interestingly in June, the Employees Provident Fund (EPF) and Abrdn plc emerged as substantial shareholders of ATech, with 7.87% and 7.06% equity interest respectively.

This came in the same month that ATech completed a private placement that raised about RM132.01 million at an issue price of RM3.35 per share. Some RM55 million of the gross proceeds was earmarked for the construction of the company’s new integrated manufacturing plant.

Year to date, the share price of Main Market-listed ATech had gained 14% to close at RM2.94 last Thursday, which translated into a market capitalisation of RM1.27 billion. The counter is trading at a historical price-earnings ratio (PER) of 25 times.

Looking ahead, ATech is set to expand its offerings in mobility and communication products, many of which are driven by IoT solutions, especially in the motor vehicle industry.

Loh says ATech’s IoT portfolio includes vehicle telematics, electric vehicle (EV) management systems, energy management and smart asset monitoring devices. A key application is the use of vehicle telematics by automotive insurers in the US and Europe to monitor customer behaviour, he notes.

With the global rollout of 5G infrastructure, demand for 5G-related IoT solutions is expected to surge, creating more opportunities for ATech.

Loh points out that the company’s new automotive segment is gaining traction, particularly with communication modules and monitoring devices for insulation and tyre pressure. “Going forward, we believe more 5G and IoT products will be infused into automotive applications,” he says.

An important aspect of ATech’s growth strategy is its ongoing expansion in Kulim, where it currently operates three plants. The company is in the midst of building a fourth facility, dubbed P5, which is expected to be completed by the end of the year.

“We plan to double the built-up space of our premises to 520,000 sq ft from 260,000 sq ft currently via our expansion project on our 301,874 sq ft freehold industrial land with an investment of RM13.6 million,” says Loh.

P5 will be fitted with a clean room facility and is expected to be fully utilised within two to three years. Loh expects the new facility to double ATech’s production and warehousing capacity as well as its profitability. “Theoretically, our production and warehousing capacity should double by then, as should our profitability.”

Wireless technology will spearhead the utilisation of P5, with increasing focus on 5G products for automotive applications such as autonomous driving and in-vehicle infotainment, he reiterates.

Moreover, the global shift towards the China+1 manufacturing strategy has created significant opportunities for Malaysia as a preferred hub for multinational corporations (MNCs). “We are continuously exploring partnerships or participation in the supply chain to support the localisation efforts of these MNCs,” says Loh.

To mitigate the effects of market fluctuations, particularly due to the tech and semiconductor cycles, ATech has a diversified customer base, spanning industries such as communication, energy, automotive, financial technology and agriculture.

“Engaging with a diverse range of customers across different industries provides us with valuable insights and stability,” he says, adding that this diversification helps the company maintain a stable revenue stream and ensure that no single market trend disproportionately impacts its business.

“We like to maintain our priority to continuously build on our many years of cumulative knowledge and ability to serve different sectors with varying technology demands. Of course, there are still many more new customers from new industries, which we are actively working on to further diversify our customer portfolio.”

Although the semiconductor industry has been a magnet for high revenue opportunities, Loh points out the cyclical and capital-intensive nature of the business.

“We are often asked whether we are investing in the advanced semiconductor industry as it is more glamorous and high-end than the highly competitive EMS sector. We are attracted to the former’s high revenue but it can be cyclical and volatile and its extensive facilities and capital commitments are overwhelming,” he observes.

Instead of venturing into the semiconductor space, ATech remains focused on adding higher-margin products to its catalogue and driving operational efficiency, which the company believes provides it with a competitive edge on the global stage.

“We provide additional value to our customers by offering cost-effective solutions that are comprehensive, agile, faster and more efficient, facilitating cost-down initiatives for customers,” says Loh.

ATech’s net profit margin improved from 6% in the financial year ended Jan 31, 2022, to 7.7% in the financial year ended Jan 31, 2023. It improved further to 9.9% in the financial year ended Dec 31, 2023, and to 11.4% in 1HFY2024.

By comparison, the net margins of V.S. Industry Bhd (KL:VS) and SKP Resources Bhd (KL:SKPRES) were 4% and 5% respectively in their latest full financial year. Meanwhile, the net margins of Cape EMS Bhd (KL:CEB) and Betamek Bhd (KL:BETA) stood at 8% and 9% respectively. 

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