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.