Hot stock: AEM down as much as 6.9% after Q1 earnings plunge

SHARES of mainboard-listed AWX : AWX 0% tumbled by 6.9 per cent on Tuesday after the group posted a year-on-year plunge in its first-quarter earnings.

The electronics services provider saw its shares decline to an intraday low of S$3.77 as at 10.01am on Monday, down S$0.28 or 6.9 per cent.

The counter was trading 6.7 per cent or S$0.27 lower at S$3.78 as at 1.21pm, with 14.9 million shares changing hands amid active trading.

On Monday, AEM said its net profit fell by 63.1 per cent to S$13.3 million for the three months to March 31.

Revenue was down 45.4 per cent to S$80.2 million, with AEM noting that its latest results followed a "record-breaking Q1 2020".

The group now expects revenue of between S$460 million and S$520 million for the full year, after its takeover of contract manufacturer CEI. The turnover will be weighted towards the second half of the year and into 2022, AEM said in a bourse filing.

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The FY2021 revenue guidance is short of the consensus estimate of S$556 million, hence street estimates would have to be cut to S$500 million, Lim & Tan Securities said on Tuesday. 

In a separate note, DBS Group Research flagged the possibility that AEM's management is being conservative again. 

In 2019, AEM's actual revenue of S$323.1 million was 65.7 per cent higher than its first guidance of between S$180 million and S$210 million. In 2020, the group's actual revenue was 52.6 per cent higher than its first guidance. 

AEM's Q1 net profit was also below DBS Group Research's expectations. The research team said one possible explanation for the drop in profit is seasonality.

"Q1 is typically the weaker quarter and in the past has accounted for as low as 13 per cent of AEM's full-year net profit (Q1 2017 and Q1 2019)," DBS said.

Despite the weaker Q1 performance, DBS said results commentary indicates strong recovery in H2 2021 through FY2021 as AEM's next-generation tools are phased into its customer's high-volume manufacturing sites globally. 

Lim & Tan Securities' FY2021 net profit estimates would have to be reduced to S$85 million from S$103 million. A similar 17 per cent cut in consensus target price would reduce it to S$4.10, similar to where AEM's counter is currently. 

Lim & Tan Securities is recommending that investors "take profit" on the stock. Meanwhile, DBS has a "buy" recommendation on the stock with a target price of S$5.36 under review.