$AEM(AWX.SI) share price have run up too much before the results release which has no positive news. Actual earnings is as per guidance and dividends is as per dividend policy. 3 for 1 Bonus issue is actually a stock split and does not add value. True it will increase liquidity but that will be after the Bonus Issue in May.
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Nice Q2 results from $AEM(AWX.SI). The record revenue and profits is due to their key customer Intel rolling out their 10nm processors. I believe Intel will continue ramping up their 10nm processors due to yesterday's product release by AMD, see link: https://venturebeat.com/2019/08/07/amd-ceo...
For the first time in history AMD's server processors are faster than Intel's. This is critical as the server chips are the most profitable for Intel and they totally dominate the market with a 95% market share. Intel will want to snatch back the crown.
Currently Intel is rolling out their 10nm chips for Laptops for delivery for the holiday season end of this year. As they having serious yield problems, they are still producing the 14nm chips hence the need for more handlers from AEM. From Intel's April 2019 Investor Day Slide below, they plan to produce 10nm server chips from 1H2020. However AMD's product release yesterday will place much pressure on Intel to move this schedule forward regardless of the yields to snatch back the lead from AMD.
Another good news is that AEM's MEMs testing division, Afore has received an initial order from the world's larget MEMs sensor supplier. I mentioned this possibility in my previous post here https://www.investingnote.com/posts/1390601
Please DYODD. Vested 210k shares in AEM and 300 shares in AMD.
AMD CEO: Epyc 2 chips are the world’s fastest x86 processors
AMD CEO: Epyc 2 chips are the world's fastest x86 processors, mounting a big challenge to arch rival Intel in the data center computing market.
After attending the $AEM(AWX.SI) AGM yesterday, I see 4 potential positive catalyst and one negative news for the stock price. First the positives:
The increase in sales is due to Intel’s decision to rollout their 10nm chips earlier. Those who follow Intel’s progress on 10nm will know that Intel is facing huge problems with 10nm. The yields are low which means more testing is required to ensure reliability. Furthermore Intel has no confidence on their 10nm chips so they continue to produce their 14nm processors, hence the need for new handlers from AEM. Therefore the high sales orders are expected to continue for this year at least in my opinion.
AEM shipped the first prototype to the new memory customer in Feb’19. The prototype is now under Qualifications approval by the customer. Once approved which is expected in the next couple of months, commercial deliveries will start. I believe this is a huge potential as volume of memory chips are huge as compared with processors and this success may trigger other memory chips manufacturers to come on board.
Huawei has accepted AEM’s solution and the first delivery will be in Jun’19. This tester is for testing the short reach cable links for the 5G network which operates at speeds of 100Gbps. It was Huawei that approached AEM to come out with a solution as there are currently no portable testers. This tester will enable Huawei to use the cheaper Multimode Fibre Optic cable for the 5G network. As Huawei will be aggressively rolling out it’s 5G network in China, this is another big potential customer. On top of this, AEM’s handheld cable tester, TestPro which was launched last year has won several awards. This recognition and the approval of network cable manufacturers on the use of AEM’s tester to make claims will enable AEM to penetrate the market for network cable testers currently dominated by Fluke Networks.
AEM’s MEMS tester division, Afore is a pioneer in WLP (Wafer Level Packaging) MEMS testing. MEMS with WLP are much smaller 1x1mm compared with 4x4mm normal MEMS. Currently the world’s largest MEMS sensor manufacturer in the world is conducting qualifications on Afore’s testers. Hopefully there will be good results from this.
Finally Novoflex which is 21% owned by AEM, has received authorization from MasterCard and Visa for their customized Smart Cards. Novoflex’s printed chip technology is not only cheaper but more secure as the chip cannot be removed unlike current Smart Carts. They are securing pilot testing with several banks globally with expected roll out by end of this year. As this is not AEM’s core business, most likely the business will be sold for a good profit.
As for the negative news, the management confirmed that there will an impact from Intel’s withdrawal from the 5G Modem business. As currently Intel is still producing 4G Modems, the impact will not be felt yet. The impact will also be mitigated as although the volumes are large the testing time of modems are much shorter than processors. Furthermore as modems are not part of Intel’s core business, some of the testing are outsourced to assembly and test companies. These companies do not use AEM’s handlers. My concern is that as Intel’s 4G modem performance is inferior to Qualcomm’s modems, Apple may switch from Intel to Qualcomm earlier, before the 5G phones are released.
There are also other technologies which AEM are working on but I will not mention here as those will take a longer time to bear fruits. Please see the attached pdf for the AGM presentation. I foresee a bright future for AEM. Please DYODD, vested 190k shares.
Although the STI did no go up much (<2%) for the month of February, my portfolio performed much better (+11%) this month thanks to the following counters:
$Accordia Golf Tr(ADQU.SI)
My conviction and patience have paid off. Even Oxley which have been on the downtrend for so long has finally started to move up, however it’s still underwater for me. Last week I took 23% profit for AGT. Today, I sold all my Silverlake shares at 31% profit. I also sold 20% of my AEM share at 33% profit. And for Sunpower, my average price is 0.44 and I will sell my 2nd batch after the results release tomorrow.
As for Sasseur Reit, I will be keeping them for now. It is still CD with a 3.541c dividend coming up. I believe their outlet sales can continue to grow and it should be able to payout a dividend yield of at least 8.5% after XD.
I first bought Sasseur reit 5 months ago. I did not buy much as there is no track record and the malls are in China, it will be difficult to monitor how there are doing. However I believe in their business model and even added more during the recent price drop before the results release. The results were better than expected and it proves that the Outlets model is resilient to online shopping and even the trade war! The 4Q DPU is 28% above forecast. This is despite the fall in the RMB/SGD exchange rate. The reason for the good performance is that the 4Q is historically the period with the highest sales and also that they no longer have to keep reserves in case of poor performance. This REIT is difficult to understand and is not for everyone, please see my previous post if you want to know more: https://www.investingnote.com/posts/1019661
After attending AEM’s AGM, I feel more confident about the 3 acqusitions: InspiRain, Afore and Iris Solutions. I won’t go into detail here as you can go through the Presentation Slides from SGX website and read Felix Tan’s great report on the AGM. AEM is currently working on the next generation Handlers for Intel and they will be incorporating the technical expertise from all three.
I was also a little concerned about the Q1 2018 results. Although the revenue is higher, the net profit margin of 12.5% is lower than the NPM of 16.4% of Q4 2017. The reason given was a one time discount given to their customer and product mix. Moving forward the proportion of revenue from Kits and Spares which has a higher margin will increase from the current 53% as more Handlers are shipped to the customer. Furthermore they have started shipping Handlers from the new Penang plant so I expect their cost to go down. They are applying Pioneer Tax status for the Penang plant.
Another disappointment in the results announcement was there was no revision of FY18 guidance for revenue and pre-tax profit despite a big increase in the order book on 1 Apr. The reason is Intel has reduced the lead time to only 4 months from 10 months so they have no vision on the Q4 orders. However yesterday Intel has continued to increase their full year revenue guidance so there should be no let up in the orders. There should be an increase in the FY18 guidance by September.
Why am I so confident there will a increase in guidance? Now that we know the lead time for the orders, we can easily calculate the revenue from the order book. It was announced that the order book for delivery in 2018 was 192m as at 1 Apr. Deducting the 66m in Q1, this means they need to fulfill orders of 126m by end July. This means a revenue of 31.5m per month which is a whopping 43% higher than the revenue per month in Q1. If the same rate of orders continues till September, we should see FY18 revenue of 350m, up 37% from their guidance.
Managed to add more at 5.35 today, thanks to Trump. Fundamentals of AEM have not changed. Their Test Handler sales would not be affected by this trade war. As for the Apple news that they would be using their own chips, it will only take effect a couple of years from now. Intel has already shifted their focus to processors for Servers.
With more liquidity after the bonus Issue in May, the institutional investors would be back!