What You Should Know About AEM Holdings Ltd (SGX: AWX), Which Will Count Temasek As Its New Shareholder
AEM Holdings Ltd (SGX: AWX) offers application-specific intelligent system test and handling solutions for semiconductor and electronics companies serving the advanced computing, fifth-generation (5G) mobile network, and artificial intelligence (AI) markets.
Earlier this month, AEM announced that it has signed an agreement with Temasek to raise S$103.1 million through a private placement.
AEM will issue 26.8 million new shares at an issue price of S$3.8477 apiece to the Singapore-headquartered global investment company.
The placement represents 9.5% of the total number of outstanding shares in AEM.
AEM plans to use the proceeds from the private placement to:
- strengthen its growth opportunities by investing in next-generation testing capabilities,
- deepen research and development to accelerate product portfolio expansion, and
- fund its merger and acquisition plans.
Right here, let’s briefly look at what could have attracted Temasek to AEM, and whether there are opportunities for retail investors to invest in AEM at its current share price.
AEM’s Business Has Grown Tremendously
A company that has consistently increasing revenue, net profit, and cash flow growth signals that it has a solid business going for it.
Over the past couple of years, AEM’s financial performance has been extremely strong.
2016 2017 2018 2019 2020 Compound Annual Growth Rate (CAGR)
Revenue (S$' 000) 70,123 221,622 262,325 323,130 518,959 64.9%
Net Profit (S$' 000) 4,657 31,489 33,493 52,763 97,587 114.0%
Net Profit Margin 6.6% 14.2% 12.8% 16.3% 18.8% N/A
Operating Cash Flow (S$' 000) (1,651) 49,782 34,090 67,674 86,287 20.1%
(from 2017 to 2020)
From 2016 to 2020, the global leader in test and handling solutions saw its revenue grow 65% annually.
Its net profit surged over 100% each year, causing its net profit margin to step up from around 7% in 2016 to 19% in 2020.
AEM enjoys a strong balance sheet as well. As of 30 June 2021, AEM had cash and cash equivalents of S$70.9 million with S$67.4 million in total debt.
The strong growth in AEM’s financials over the years helped it to cross the S$1 billion mark in market capitalisation too.
Room for AEM To Still Grow Further
Earlier this year, AEM fully acquired then-listed CEI Limited.
AEM sees CEI as “a strategic fit for the AEM infrastructure”.
The acquisition will provide AEM with a wider customer reach and potential for cross-selling, among other benefits.
In terms of industry prospects, the World Semiconductor Trade Statistics (WSTS) expects the global semiconductor market to grow to US$527 billion in 2021, an increase of 19.7% from 2020.
WSTS is the world’s leader in global semiconductor market statistics.
In 2022, the global semiconductor market is projected to grow by another 8.8%.
With accelerated digital adoption due to COVID-19, there will be a continued demand from technologies and devices that require chips, such as new smartphones, 5G networks, and AI.
The advent of self-driving cars and increased automation also helps to fuel demand for AEM’s services.
AEM is poised to benefit from the growing trend of the semiconductor industry as a whole, but now with the marriage with CEI.
Is It Worth Buying AEM Shares Now?
At AEM’s share price of S$4.00, it has a trailing diluted price-to-earnings (P/E) ratio of around 16x.
Over the last five years, its average P/E ratio was 11x, according to Morningstar.
In my opinion, even though AEM looks overvalued based on history, it could be worth paying up for a well-managed and growing company.
However, one major downside to note with this business is that it has customer concentration risk.
In 2020, one customer contributed to a whopping 95% of its total revenue. If that customer pulls out for any reason, AEM’s business will be badly hit.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer doesn’t own shares in any companies mentioned.