AEM H1 earnings fall 46.6% to S$29.5m as revenue normalises

AEM Holdings AWX on Thursday posted earnings of S$29.5 million for the first half of the fiscal year ended June 30, 2021, down 46.6 per cent on-year from S$55.3 million for H1 FY2020 due to comparatively lower revenue.

Revenue for H1 fell 29.8 per cent to S$192.3 million from S$273.7 million the previous year, which the electronic services provider says represents a normalisation after the ramping up of demand on equipment and consumables by its key customer in FY2020.

AEM nonetheless highlighted its latest half-year revenue as the second highest after a "record breaking" H1 FY 2020, and said the revenue decline was in line with expectations due to migration to its next-generation tools in the later half of 2021.

Its board has proposed an interim dividend of 2.6 Singapore cents per share, representing a payout of about 25 per cent, and down from five cents in the preceding year.

In its latest results announcement, AEM said it maintains its FY2021 revenue guidance of S$460 million to S$520 million. The group expects a strong uptake in H2 FY2021 through FY2022 as its next generation tools are phased into its customer's high volume manufacturing sites globally.

"These new tools that are being delivered in H2 FY2021 and through 2022 are highly differentiated tools for the high-performance computing segment," said AEM.

While the group noted continued challenges for order fulfilment due to ongoing supply chain disruptions in the industry, it said it was working with suppliers to secure the parts and components to meet its shipment plans.

"We are also pleased with our progress of deep technical engagements with 10 out of the top 20 global semiconductor companies, spanning mobility, memory and high-performance computing. We are hopeful to achieve meaningful revenue from these engagements in 2022," said chief executive Chandran Nair.

AEM ended Thursday S$0.03 or 0.7 per cent higher at S$4.09, before the results were released. The group called for a trading halt on Friday morning pending the release of an announcement.

Calling the latest set of results "a temporary blip", DBS Group Research believes AEM is set to benefit from a pipeline of catalysts including potential new customers in FY2022. It expects AEM's earnings to grow at a compound annual growth rate, or CAGR, of 10 per cent from FY2020 to FY2023.

The research house maintains its "buy" call on the stock while cutting its target to S$4.73 from S$5.36 after lowering its FY2021 estimates. The new target price's valuation remains pegged at 13.7 times FY2021 earnings, unchanged from AEM's previous peak valuation in 2018.

"AEM is in a strategic position to benefit from its key customer and industry uptrend. The stock (at S$4.09) is currently trading at 10.3 times FY2021F price-to-earnings, which is at a 51 per cent discount to its peer average of 21 times," noted its analysts in a report on Friday.

"Given the limited visibility but strong industry momentum, we do not rule out a potential series of further earnings upgrade which was what happened in FY2020," they added.

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