AEM Holdings has opened a new manufacturing plant in Penang. The new plant spans an area of 365,000 sq ft and will be used for assembly and quality assurance (QA). The new plant will also serve as a warehouse and a research and development (R& D) lab. In addition, it will be used for the development of advanced testing and handling equipment.

 

The opening comes after the group saw revenue more than double y-o-y to $746.6 million for the 9MFY2022, a record for the group.

 

In its statement, AEM noted that the new plant will help the group tap into the region&rsquo s growth opportunities and talents and bring its operations closer to existing and new customers.

 

According to the group, Penang, a hub in the semiconductor global supply chain, accounts for 80% of Malaysia&rsquo s contribution to the global backend semiconductor output. The state accounts for over 5% of the world&rsquo s semiconductor sales over the last few years.

 

The opening of the plant was officiated by Chow Kon Yeow, the chief minister of Penang Lim Bee Vian, the deputy CEO, Investment Development of the Malaysian Investment Development Authority (MIDA) AEM&rsquo s CEO Chandran Nair, as well as AEM&rsquo s non-executive chairman, Loke Wai San.

 

&ldquo Experiencing an upward trend in its exports, Penang contributed an average 29% of Malaysia&rsquo s export, and 58% of the nation&rsquo s trade surplus over the past five years,&rdquo says Chow in his congratulatory speech. &ldquo In terms of investments, Penang is among the top contributors to the country, garnering RM9.2 billion ($2.79 billion) in approved manufacturing investments from January to September 2022. Particularly, investments from the machinery and equipment industry amounted to a total of RM7.3 billion from 2020 to September 2022, represented 57% of the country&rsquo s total.&rdquo

 

He adds: &ldquo Riding on the prolific growth of advanced technologies, I am confident that Penang will be benefitting from the semiconductor industry&rsquo s long-term outlook. The state, via InvestPenang, is looking forward to working with AEM in accelerating the region&rsquo s vibrant electrical and electronics (E& E) ecosystem development, anchoring our status as the Silicon Valley of the East.&rdquo

 

&ldquo This project demonstrates not only AEM' s confidence in Malaysia' s long-term investment propositions but also the thriving state of the manufacturing industry and its ecosystem in Malaysia. The project is a parallel testament of the global investors' confidence in Malaysia as the preferred investment destination and the local companies' capability and readiness to support high-profile business ventures and activities,&rdquo says Lim.

 

&ldquo We&rsquo re pleased to announce the opening of our new plant in Penang. It allows us to scale up testing and handling capabilities to meet the growing demand for new semiconductor devices. We ensure our customers&rsquo success by continuing to grow our capabilities to deploy quickly at scale. Together with our centre of excellence in Singapore, I believe we will solidify our position as a hub in the region,&rdquo says AEM&rsquo s Nair.

 

MAYBANK on Monday (Jan 9) downgraded its &ldquo hold&rdquo call on semiconductor group AEM to &ldquo sell&rdquo , amid widespread cost-cutting measures within the industry as the Covid-19 boom fades.

 

Analysts cut the company&rsquo s earnings estimate by 5 per cent and lowered the pegged price-to-earnings ratio from nine times to 8.5 times. The brokerage&rsquo s price target for AEM was also reduced to S$3.08, from S$3.43.

 

Maybank expects the company&rsquo s order book to fall in 2023 compared with a robust H1 2022, though the decline could be partly mitigated by orders from new customers in the first half of this year.

 

Following news of Intel&rsquo s cost-cutting measures late last year, the analysts were also worried that the giant chipmaker would negotiate on margins with key suppliers if things deteriorate, thereby affecting AEM&rsquo s margins given that Intel is a key customer.

 

&ldquo We believe that the weak outlook from its key customer coupled with a looming recession in Europe and the US signals a lack of positive catalysts going forward and downside risk is evident,&rdquo said Maybank in its report.

 

The group&rsquo s short-term headwinds may thus present lower priced entry levels in the near term for investors, added the analysts, who remained confident in AEM&rsquo s long-term prospects.

AEM Holdings reported a 41 per cent jump in Q3 2022 revenue to S$206 million, from S$146 million a year prior, in a bourse filing on Friday (Nov 4).

 

Net profit for the quarter grew in tandem, up 38.3 per cent to S$32.2 million, from S$23.3 million in the previous year. The topline and bottomline growth were driven by a ramp-up in volume from new and existing customers of AEM&rsquo s systems-level testing handlers and peripheral tools. Contributions from CEI, acquired in March 2021, also powered the semiconductor testing company&rsquo s growth.

 

The company is investing in a longer-dated purchase order backed programme of about S$280 million, resulting in an increase of inventories from S$204.9 million as of Dec 31, 2021 to S$322.5 million as of Sep 30, 2022. Cash and cash equivalents have also reduced to S$153.6 million as of Sep 30, 2022, from S$216.2 million as of Dec 31, 2021.

 

Revenue guidance for FY2022 is maintained between S$820 million and S$850 million on the back of strong demand from customers.

 

The semiconductor industry is encountering near-term recessionary concerns, as government-backed capital investments have surged. With the investments into next-generation semiconductor nodes and advance packaging technologies, AEM believes that these new developments will require new test methodologies that the company can support.

 

The migration to the new test methodologies will drive capital expenditure from AEM&rsquo s customers as well as come with a higher percentage of test consumables which the company has been investing in. 

 

&ldquo While we remain cognizant of near-term risks given the recessionary concerns, we believe that the mid- to long-term outlook remains strong. Our conviction is further strengthened by customers&rsquo feedback and their confidence in placing our solutions in the critical path of their next-generation product launches,&rdquo said Chandran Nair, chief executive officer, AEM.

CGS-CIMB Research analysts William Tng and Izabella Tan have retained their &ldquo add&rdquo call on AEM Holdings as they see the company&rsquo s strength in system-level testing (handlers and complete testing solutions) as &ldquo intact&rdquo .

 

&ldquo [AEM&rsquo s] long-term prospects remain strong,&rdquo Tng and Tan write in their Oct 14 report.

 

However, the analysts have slashed their target price on the counter to $3.76 from $6.54 previously on the back of fears of order deferments.

 

Amid the news of US restricting exports of chips to China as well as reports of possible job cuts at AEM&rsquo s major customer Intel, AEM&rsquo s share price plunged by 21.5% to $3.25 on Oct 13 from $4.14 on Oct 7.

 

The potential loss of the China market, in terms of how much of Intel&rsquo s data centre-related (DC-related) chips could be affected by the sales ban, is a concern, the analysts note.

 

With AEM&rsquo s expansion plan on track, with its Penang plant expansion expected to come online between end-October to early-November 2022 and Intel&rsquo s new multi-phased expansion in Penang expected to begin production in early 2024, Intel has leeway to defer its orders for test handlers (THs) from AEM.

 

&ldquo We assume that such a deferment could occur over the FY2023 &ndash FY2024 [ended Dec 31] and hence cut our sales assumptions for AEM by 6.7%-7.1%, leading to [a] 11.2%-11.8% decrease in our earnings per share (EPS) forecasts,&rdquo Tng and Tan write.

 

In their view, if the semiconductor industry is headed for decline in the FY2023, AEM&rsquo s valuations could revert to its six-year (FY2017- FY2022) average P/E multiple of 8.0x.

 

&ldquo However, we opine that AEM&rsquo s patented TH technology warrants some premium. Hence, we now value AEM at 9.7x (0.5 standard deviations or s.d. above its six-year average) on our reduced FY2023 EPS forecast given possible order deferments,&rdquo the analysts write. &ldquo Previously we used 14.9x (+2 s.d. above its six-year average).&rdquo

 

To them, stronger-than-expected orders from AEM&rsquo s major customer and earlier-than-expected success in securing orders from other potential customers are re-rating catalysts to its share price. On the other hand, delivery delays and the loss of its sole supplier status which will negatively affect AEM&rsquo s profitability, are downside risks.

 

On Oct 14, AEM lifted its revenue guidance for the FY2022 to between $820 million and $850 million from its previous guidance of $670 million to $720 million on the back of increased demand from its new and existing customers.