Group posts year-on-year decline in Q1 earnings, with net profit down 63.1 per cent and revenue down 45.4 per cent

 

AEM Holdings is the latest technology-related stock to disappoint analysts this earnings season, as the sector deals with a global chip shortage.

 

Lim & Tan Securities on Tuesday recommended investors " take profit" on the provider of services and machinery to the semiconductor sector, after the group posted a year-on-year decline in its first-quarter earnings.

 

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. AEM did note that its latest results followed a " record-breaking Q1 2020" .

 

The group 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. The company had reported revenue of S$519 million in FY2020.

 

Following the earnings plunge, AEM shares hit an intraday low of S$3.73, down 7.9 per cent or S$0.32 at 10.50am amid active trading. The counter closed at S$3.79 on Tuesday, down 6.4 per cent or S$0.26, with 18.3 million shares changing hands.

 

On a year-to-date basis, AEM' s shares have risen 9.9 per cent or S$0.34. As at Tuesday, the group has a market capitalisation of S$1.05 billion and is trading at a price to earnings ratio of 10.8 times.

 

Lim & Tan Securities said the FY2021 revenue guidance is short of the consensus estimate of S$556 million, and that street estimates would probably be cut to around S$500 million. Net profit estimates, meanwhile, would have to be reduced to S$85 million from S$103 million.

 

A similar 17 per cent cut in the consensus target price would reduce it to S$4.10.

 

AEM' s earnings also missed DBS Group Research' s expectations. The research house suggested seasonality as one reason for the miss. It has a " buy" recommendation on AEM with a target price of S$5.36 under review.

 

But DBS also flagged that AEM' s management has a track record of being conservative in its guidance.

 

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.

 

" 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 in a Tuesday research note.

 

Intel, which is widely said to be AEM' s biggest customer, is prioritising its capital expenditure (capex) to build chip fabrication plants given global chip shortages. If this is the reason for AEM' s profit miss, DBS said orders for AEM' s test handlers will have to come in strong as well and could come later on.

 

A surge in demand for phones, laptops and electronics during the pandemic caused the global chip shortage - which is now hitting car makers on top of tech giants Apple and Samsung Electronics. These sectors have flagged production cuts and lost revenue from the crisis.

 

AEM is not the only electronics player to miss analyst estimates. Venture Corporation last week fell short of Maybank Kim Eng (Maybank KE)' s expectations after it posted a first quarter net profit of S$65.3 million, up 8.3 per cent on the year.

 

Despite a strong order outlook, Venture' s revenue only rose 2 per cent to S$686.7 million. This was attributed to global parts and components shortages.

 

Venture' s Q1 net profit accounted for only 19 per cent of Maybank KE' s estimates for FY2021, as the research team underestimated the impact of component shortages on short-term performance.