AEM Holdings Ltd: An In-Depth Financial Review

Company Overview

AEM Holdings Ltd (AEM) is a global leader in test innovation, providing comprehensive test solutions for the semiconductor and electronics industries. Their expertise spans test handlers, testers, consumables, and data analytics.

Current Stock Performance

Share Price: S\$1.42
Target Price: S\$1.10 (previously S\$1.04)
Upside: -22.5%
Market Cap: S\$444.5m (US\$332.0m)

Recent Financial Results

AEM reported a 3Q24 loss of S\$0.9m and a 9M24 loss of S\$0.1m, falling short of the expected S\$10m earnings for 2024. Despite raising the 2H24 revenue guidance to S\$190m-210m from S\$160m-180m, the outlook remains mixed.

Detailed Financial Insights

3Q24 Results:

• Revenue: S\$74.2m (down 6.5% YoY)
• PBT (excluding exceptional items): S\$0.9m
• Net Loss: S\$0.9m (vs S\$1.5m loss in 3Q23)
• Net Loss Margin: -1.2% (improved from -1.9% in 3Q23)

Revenue and Profitability Outlook

AEM has set a four-point mid-term strategy to achieve revenue growth through customer and market diversification, invest in Test 2.0 leadership, achieve operational excellence, and cultivate talent and culture to deliver consistent results. The company’s 2024 revenue is expected to be S\$364m-384m, slightly above the S\$360m estimate.

Strategic Initiatives

AEM continues to bring to market products from its intensive R&D efforts. The latest AMPS platform features the industry’s first fully automated high-throughput burn-in capability, which is set to be online at the customer’s site in late-2024. This platform also includes System Level Test (SLT) capability, enhancing test coverage cost-effectively and accelerating the time to market.

Investment in AI and HPC

To seize increasing opportunities in AI, AEM is intensifying investments in differentiated test capabilities tailored for AI/HPC applications. These include thermal management, application-specific test instruments, and high-throughput automation.

Financial Projections

Key Financials (Year to 31 Dec):

• 2022: Net turnover: S\$870m, EBITDA: S\$184m, Net profit: S\$128m
• 2023: Net turnover: S\$481m, EBITDA: S\$39m, Net profit: -S\$1m
• 2024F: Net turnover: S\$385m, EBITDA: S\$32m, Net profit: S\$10m
• 2025F: Net turnover: S\$445m, EBITDA: S\$48m, Net profit: S\$25m
• 2026F: Net turnover: S\$488m, EBITDA: S\$55m, Net profit: S\$30m

Valuation and Recommendations

UOB Kay Hian maintains a SELL recommendation for AEM Holdings Ltd, with a 5% higher target price of S\$1.10, based on 14x 2025F PE. This reflects an earnings trough cycle for AEM.

Potential Catalysts

Positive surprises in future revenue guidance and the acquisition of new customers could act as catalysts for AEM’s stock performance.

Conclusion

The financial performance of AEM Holdings Ltd in 3Q24 has been below expectations, with key challenges in revenue and margin. Despite this, the company’s strategic initiatives and investments in AI/HPC applications present potential for future growth. Investors should consider the mixed outlook and maintain a cautious approach as recommended by UOB Kay Hian.