SINGAPORE (May 14): As many companies settle for lower earnings and revenue due to the Covid-19 pandemic, AEM Holdings bucked the trend with its ‘best quarter on record’ for 1QFY2020 ended March. 

The provider of equipment systems solutions and manufacturing services booked earnings of $43.8 million, a 449% surge compared to the previous year. This came on the back of a 179% increase in revenue to $146.8 million from $52.7 million in 1QFY2019, due to increased orders from its main customer, Intel. 

See: AEM books 'best quarter on record' as earnings surge 449% to $43.8 mil

KGI Research analyst Kenny Tan notes that the company’s profit margins improved to 24.6% from 16.3% last year due to the group’s ability to maintain high levels of production with a low fixed cost structure. 

As far as 2020 is concerned, AEM is looking to garner sales within the range of $430 million and $450 million, a significant hike from its previous guidance rage of $360 million to $380 million. And Tan remains confident that this is highly likely. 

“The only dark spots, if any, is the lack of contributions from subsidiary segments, in which no segmental breakdown was provided,” says Tan. 

“Furthermore, none of 1QFY2020’s revenues were rushed production pull-ins from later quarters. AEM also confirmed that orders were still coming in,” he adds. 

To be sure, Tan says the guidance raise reflects a “changing sentiment” due to continued orders from Intel. In addition, companies in the tech sector can generally remain defensive amid the Covid-19 pandemic. 

“The tech sector, semiconductor industry included, has generally weathered the Covid-19 crisis fairly well,” shares Tan. 

“Fellow test equipment peers have generally performed above expectations, confirming earlier theories that the disruption is mainly supply-side and not demand-side,” he adds. 

Looking ahead, the brokerage is expecting a “conservative” net margin of 18.5% for the company, citing these to be fairly defensible for the time being. 

As AEM ramps up production of the latest generation of test handlers, Tan opines that margins are likely to increase even more. 

However, Tan remains cautious about the escalation of pandemic which could lead to supplier delays and order cancellations, as well as the possibility of competitors’ R&D efforts weakening AEM’s market position.

KGI is reiterating its “outperform” call on AEM Holdings with a higher target price of $3.61 compared to the previous one of $2.60. 

Year to date, shares in AEM have surged some 50.2% to trade at $3.15 as at 3.19pm.