AEM Holdings Ltd - CIMB Research 2017-01-04: Cutting Edge Product From The Little Red Dot

AEM Holdings Ltd - CIMB Research 2017-01-04: Cutting edge product from the little red dot AEM HOLDINGS LTD AWX.SI

AEM Holdings Ltd - Cutting edge product from the little red dot

  • AEM Holdings (AEM) manufactures equipment used in the semiconductor, solar and smart card industries.
  • After four years of R&D and collaboration with a major customer for a new generation equipment, AEM began winning sales orders in 2016.
  • On 9 Dec 2016, AEM announced that its outstanding orders to be recognised in 2017 were S$66.7m. Its 9M16A revenue was S$50.6m.
  • AEM trades at historical 9M16 P/BV of 1.54x and historical FY15 P/E of 6.8x.

What it does 

  • We visited AEM on 12 Dec 2016. AEM is listed on the main board of the Singapore Exchange. The group designs and manufactures equipment and precision components for the semiconductor, solar, smart card and other industries. 
  • AEM has three manufacturing plants, located in Singapore, Malaysia (Penang) and China (Suzhou), respectively. 
  • Its equipment systems business accounted for 86% of its FY15 sales while the precision components & others business accounted for the remaining 14%.

What has changed? 

  • According to management, in FY12, AEM started collaborating with a major customer to develop the next generation of high density modular testers that are able to test various types of computer chips on a single machine. Management highlighted that all associated costs in developing this new generation of testers have been expensed off.
  • On 18 Mar 2016, AEM announced sales orders worth S$24.5m. This was followed by further sales orders announcements in Oct, Nov and Dec 2016.

Key risks 

  • Key risks include: 
    1. exposure to the cyclical semiconductor industry. The company noted that the semiconductor industry is cyclical and it needs to keep abreast of rapid technological changes; 
    2. customer concentration risk -- based on the 5 Dec issue of The Edge Singapore, AEM’s key customer is Intel. 
  • Management estimated that its key customer accounted for at least 80% of its FY15 revenue.


  • Management believes that its future prospects are strong with its next generation high density modular test handlers entering volume production in the coming years. It also highlighted that demand for high-margin related consumables should also improve. 
  • On 9 Dec 16, AEM announced that it had an outstanding order book of S$66.7m, to be delivered in 2017.

Net cash balance sheet 

  • AEM resumed its dividend payment after returning to the black in FY15. 
  • As at end Sep 2016, its balance sheet was in a net cash position. In its FY15 annual report, AEM CEO wrote that “As our business grows, we will need to look for more avenues to support our working capital needs. 
  • To date, we have relied solely on internal sources to fund our operations. However, going forward, it may be helpful for us to consider financing from financial institutions to complement our growth.”

Target Price: N/A

William TNG CFA CIMB Research | 2017-01-04
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