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Earnings Season: 2 Beaten Down Stocks To Watch

Numerous companies are about to release their earnings report card. There are two companies in particular that I will be keeping a close eye on. They are Raffles Medical Group Ltd (SGX:BSL) and AEM Holdings Ltd (SGX: AWX). Both these companies have been hit by massive sell-downs, leading to share prices falling more than 30% from their peaks.

Raffles Medical has been hit by negative market sentiment due to a saturated private healthcare market in Singapore and regional competition for medical tourism. AEM Holdings, on the other hand, after surging in 2017, has fallen hard from its peak due to fears that a US-China trade war can impact the company’s earnings.

However, both companies, in my view, have a bright future and the sell down might be overdone. Here’s what I’m looking out for when they release their earnings update.

Raffles Medical will be releasing its results on the morning of Monday, 6 August, before the stock market opens. The healthcare outfit has been facing a challenging business environment in Singapore in recent years.

In 2017, the group’s revenue and profit attributable to shareholders only inched up by a meagre 0.8%. This is a deceleration from the company’s previously stellar record of growth. As a result, its share price had fallen 33% from its peak back in 2015.

In January this year, Raffles Medical opened the extension of its hospital in Singapore. The April to June quarter will mark the first period whereby the expansion will contribute to a full quarter of revenue and earnings. It will be interesting to see how much the extension benefits the company’s revenue and earnings for the quarter.

Raffles Medical is also scheduled to open two new hospitals in China. The Raffles Hospital in Chongqing is slated to be opened in the fourth quarter of this year, with the one in Shanghai expected to open in the second half of 2019. As a shareholder, I will be watching with anticipation when the two new hospitals are up and running.

AEM Holdings, like other manufacturing stocks in Singapore, has been hammered down by the market due to the trade conflict between the US and China. Its stock price has fallen a massive 41% from its peak. AEM, which produces test handler systems for semiconductor manufacturers in the United States, owns one factory in China and therefore, could be impacted by the new trade tariffs.

However, there are a few reasons why I believe AEM’s business may not be as badly affected as the market has made it out to be. For one, AEM has other factories located outside of China, including in Finland, Malaysia and Singapore.

The company also has a test handler system that is better than its competition. AEM’s system has a faster throughput and also lowers the cost of testing by around 50% to 80%.

Furthermore, in April, AEM announced that it has already secured sales orders of S$192 million for FY2018, which is 29% higher than what it secured at the same time last year. It has also forecast to deliver at least S$42 million in operating profits before tax for FY2018, which is around 10% higher than in FY2017. In addition, the company maintains a good relationship with its main client, said to be Intel Corporation, which contributes to the bulk of AEM’s revenue.

As a shareholder of the company, I am keen to see if the company is on track to deliver its forecast earnings for the year. Also, I will be keeping a close watch on its revenue and profit for the second quarter of the year and will also want to know what the company has to say about the recently-implemented trade tariffs.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group Ltd and AEM Holdings Ltd. The Motley Fool Singapore contributor Jeremy Chia owns shares in Raffles Medical Group Ltd and AEM Holdings Ltd.