Excerpts from analyst's report
KGI Securities analyst:
Joel Ng

AEMchairman11.16@ briefing: AEM chairman Loke Wai San (right) with CFO Soh Wai Kong.
Photo by Colin Lum
Positive momentum on new product commercialization

AEM Holdings (AEM) reported a 329% YoY rise in 3Q16 net profit, mainly due to increasing demand for its flagship high-density semiconductor test handlers. In an analyst and investors meeting last week, management shared about the industry and plans it has for 2017.

Stock price  75 cents
52-week range 25 – 77 c
PE (ttm) 3.95
Market cap S$32 million
Shares outstanding 42.9 million
Dividend yield
(ttm)
2%
Year-to-date return 169%
Source: Bloomberg

Although still in the early phase of ramping up production of its flagship product, we believe its growth prospects are positive from our understanding of the indicative orders from a leading major chip maker for the next five years. AEM’s valuations are attractive, trading at less than half of comparable peers. We believe AEM’s share price may have the potential to double over the next 6-12 months if it keeps up its latest performance.

Production of machines requires years of close working collaboration with customers
AEM designs and builds high-density semiconductor test handlers 
used by the world’s leading chip manufacturers. According to the company, its machines allow significant quality and cost savings for customers.

Its machines 
are the product of 5 years of research and development investments, and it is now in the commercialization phase, where it expects to achieve substantial growth in 2017. We note that the customisation of its machines – requiring years of close collaboration with customers - makes it difficult for competitors to penetrate the same segment.

Improvement in financial performance over the last quarters. 
JoelNg10.16Analyst Joel NgThe focus on 
commercialising its high-density test handlers to customers is expected to see improved profitability in 2017. AEM has already posted two consecutive quarters of net profit growth. Trailing twelve months net profit is the highest in more than ten years.

Order book has almost doubled within the last nine months, increasing 
to S$45.5m as at 8 November 2016 from S$24.5m in March 2016.

AEM has a 
healthy financial position (net cash position of S$8m as at end 3Q16), low capital expenditure requirement, and is expected to generate positive cash flows from operations.


Attractive valuations compared to peers.
AEM is currently trading at 3.9x 
historical P/E compared to peers’ 67x historical average P/E and 13x forward average P/E.

AEM would be trading at 3.5x forward P/E, assuming an annualised 
3Q16 net profit, representing an upside of >100% if it were to re-rate upwards as it continues to show bottom line improvement in subsequent quarters.

See our earlier report


Share Prices

Counter NameLastChange
AEM Holdings3.840-0.010
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DISA0.003-
Food Empire0.650-0.010
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Geo Energy Res0.3750.010
Golden Energy0.7800.005
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InnoTek0.470-
ISDN Holdings0.405-
ISOTeam0.100-
IX Biopharma0.126-
Jiutian Chemical0.0780.001
KSH Holdings0.3500.005
Leader Env0.056-0.002
Medtecs Intl0.140-0.002
Meta Health0.025-0.001
Nordic Group0.4800.005
Oxley Holdings0.149-
REX International0.235-
Riverstone0.635-0.010
Sinostar PEC0.170-
Southern Alliance Mining0.380-0.060
Straco Corp.0.405-
Sunpower Group0.260-
The Trendlines0.088-
Totm Technologies0.105-0.002
UG Healthcare0.195-
Uni-Asia Group0.830-0.005
Wilmar Intl4.1200.020
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