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3 Growth Drivers for AEM Holdings Ltd

Established in 2000, AEM Holdings Ltd (SGX: AWX) is a global provider of equipment systems solutions and manufacturing services. 

In early 2016, AEM released a high-density modular test (HDMT) semiconductor handling platform that was a huge success, materially propelling the company’s sales and profits in the three years since. However, late last year, AEM said the initial ramp-up phase of its key customer of the HDMT machines is near completion.

With its HDMT machine sales expected to taper this year, I decided to take a look at the next wave of growth drivers the company could ride.

New technologies and products

In 2017 and 2018, AEM acquired InspiRain Technologies Pte Ltd, Afore Oy, and IRIS Solution Pte Ltd. These acquisitions expanded its capabilities into industrial radio frequency test solutions, wafer level Micro-electro-mechanical systems testing solutions, and vision inspection.

AEM Holdings has an Asynchronous Modular Parallel Smart platform (AMPs) initiative and delivered its first commercial solution to a client in early 2019.

Most promisingly, AEM is also working with Huawei Technologies on its optical fibre cable-test solution for Huawei’s 5G backhaul network. AEM recently received acceptance from Huawei for its test equipment and solution and has a further sales order for equipment delivery this year.

Building its relationship with its key customer

More than 80% of AEM Holdings’ sales are to its key customer, which, while not formally identified, I believe to be Intel based on AEM’s descriptions.

AEM has been supplying highly complex and customised equipment to this key customer since 2002 at competitive costs and believes to have secured a lasting relationship with it.

More recently, AEM has secured follow-on projects with its key customer to develop hybrid extensions to its existing handlers.

Management, which has been quite candid with its prospects, is optimistic about this development, saying, “We expect these new projects to deliver meaningful revenue in 2020 and beyond.”

Growing sales of consumables

AEM has three main business segments: kits, spares and services (51% of 2018 sales), tools and machines (47%), and precision components (2%).

Kits and spares and services are the sale of consumables used for the test handler systems. Even though the initial ramp-up cycle of its main customer is near completion, the consumables segment is likely to see a boost.

As the installed base of its equipment increased dramatically in 2017 and 2018, the sales of kits and pans will likely increase this year.

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