The world is facing an acute shortage of semiconductors, and companies like AEM Holdings Ltd (SGX: AWX) may stand to benefit.
But is it time to buy?
That’s the question we asked last month. Now, we have received an answer from Temasek.
Demand for electronic devices continues to escalate leading to a shortage in semiconductors.
With surging demand for microchips and a ramp-up in production capacity by reputable chip manufacturers, it was only a matter of time before business trickled down to AEM.
What we did not expect was that Temasek Holdings, a Singapore investment company that invests in a mix of listed and unlisted businesses, would show an interest in the group.
For context, Temasek chalked up an 8% annual return over the past 20 years and is well-known not just for its steady and consistent investment strategy but also for its eye for strong businesses.
AEM announced last week that Temasek is set to become the group’s largest shareholder after a placement exercise.
It also released its fiscal 2021 first half (1H2021) earnings at the same time.
Here are five nuggets of information that investors should know.
1. Raising money for growth opportunities
AEM entered into a subscription agreement with Temasek to raise a total of S$103.1 million in gross proceeds through a private placement of shares.
The group will issue 26.8 million shares at an issue price of S$3.8477 per share to Temasek.
This quantity of shares represents 9.5% of AEM’s total issued share capital and will make up 8.6% of the group’s enlarged share capital of 310.1 million shares.
The shares were issued at a 5.9% discount to AEM’s closing price of S$4.09 before the announcement was made.
AEM will use the funds to invest in next-generation testing capabilities, potential mergers and acquisitions and to fund research and development efforts to enhance its product offering to customers.
2. A downbeat set of earnings
Unfortunately, the test solutions provider reported a downbeat set of earnings for 1H2021.
Revenue fell by 29.8% year on year to S$192.3 million while operating profit plunged by 45.4% year on year to S$36.5 million.
Net profit was down sharply to S$29.5 million from S$55.3 million a year ago.
The cash balance stood at S$70.9 million while total debt was around S$55.5 million.
The group generated a S$13.5 million cash outflow from operations, a reversal from the S$47.3 million inflow in the prior period.
3. Ramp up expected
Management attributed the weaker performance to a timing difference, stating that next-generation handlers are on track to ramp up at customer sites by the end of the third quarter.
The group remains confident of a stronger uptake in the second half of 2021 (2H2021) to offset the weaker first half.
It has maintained its revenue guidance of S$460 million to S$520 million for the year.
In addition, AEM also has engineering engagements with 10 out of the top 20 semiconductor companies for potential ramp up next year.
If these initiatives come to pass, investors could see significantly stronger financial numbers for 2H2021 and 2022.
4. Integrating its acquisitions
AEM has just finalised its acquisition of CEI Limited, a company providing printed circuit board and build box assembly, on 30 June 2021.
The ongoing integration of CEI should help the group to realise better synergies and enhance AEM’s offerings to customers.
Apart from CEI, AEM is also integrating its six other acquisitions made since 2017.
These include Mu-TEST, an automated test equipment company, purchased in December 2019 for RUE 7.5 million, as well as supplier of automation fixtures DB Design Group in July 2020.
Just four months ago in April, AEM took up a 26.59% stake in Ateco, a South Korean company that specialises in the design and development of memory test handler solutions, for around US$3.8 million.
If AEM can successfully integrate these disparate acquisitions, the group will be poised to enhance its product portfolio and provide its customers with more comprehensive solutions.
5. An interim dividend declared
In line with the lower net profit, AEM declared an interim dividend of S$0.026, close to half of the S$0.05 that the group paid out last year.
Along with last year’s final dividend of S$0.04, the group’s trailing 12-month dividend stands at S$0.066.
AEM’s trailing 12-month dividend yield stands at 1.6% at the last traded share price of S$4.17.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
