The Motley Fool

3 Aspects of AEM Holdings Ltd That Investors Should Like

AEM Holdings Ltd (SGX: AWX) is a manufacturer of precision components and provider of solutions in equipment systems. The group has four manufacturing plants located in Singapore, Malaysia, China and Finland, and has a global market presence spanning across Asia, Europe and the United States.

Investors who are seeking exposure to the electronics sector should take a look at AEM. The group is riding on trends in the development and advancement of artificial intelligence and the Internet of Things (IoT) to grow its order book. AEM has many investment-worthy traits, and I am highlighting three of them here.

1. Record revenue and net profits

In its most recent second quarter of 2019 earnings, the group reported record levels of revenue and net profit, at S$97.9 million and S$15.7 million, respectively. Broad-based growth in sales was reported in all of AEM’s business segments, with the bulk of revenue (97%) coming from the Equipment Systems Solutions (ESS) business. Revenue from this division increased by an impressive 33.6% year-on-year to S$94.9 million, driven by an increase in orders from its main customer.

2. Higher margins

The group saw an expansion in margins across the board, which alludes to better pricing power and higher positive operating leverage. Gross margin increased by 4.5 percentage points (ppt) in Q2 2019 to 35.9%, and for H1 2019, it increased by 3.4 ppt to 36.7%. Net profit margin saw a 2.9 ppt rise to 16% from 13.1% for the quarter. Higher margins give investors more bang for their buck, as it means the group is generating higher levels of profits for every dollar of sales.

3. Higher interim dividend

As a result of the higher level of earnings and the continued free cash flow generation, AEM also declared a higher interim dividend of 2 Singapore cents per share, up 33% from its 1.5 Singapore cents interim dividend last year. The trailing 12-month annual dividend stands at 3.9 Singapore cents, and the trailing dividend yield for AEM’s shares was around 3.7% at the last traded price of S$1.06.

Growing the business further

AEM’s key customer has introduced new products based on more advanced semiconductor nodes, and AEM’s test handlers (which are equipped for testing complex logic chips) also saw a corresponding rise in demand. The group recently revised its revenue guidance for FY 2019 upwards, though the continuation in sales momentum will hinge upon how quickly its key customer replaces legacy platforms with AEM’s equipment.

Investors should also take comfort from the fact that AEM is actively working to diversify its customer base, and is working with a memory manufacturer, a major German sensor supplier, and Huawei to build relationships to garner future businesses.

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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 Royston Yang does not own shares in any of the companies mentioned.