SINGAPORE (Aug 15): AEM Holdings, the provider of equipment systems solutions and manufacturing services, reported record high revenue and earnings for 2Q19.

Earnings for 2Q19 ended June hit an all-time high of $15.7 million, 65.4% higher than the $9.5 million the preceding year. Revenue also surged 34.8% to a high of $97.9 million, due largely to the Equipment Systems Solutions (ESS) business.

AEM says its stellar 2Q19 performance was the result of a major customer ordering more test handlers in anticipation of its own product launch roadmap.

See: AEM reports record revenue and earnings for 2Q

So will the quarters ahead see AEM breaking records once more? Analysts say much depends on customers – both new and existing ones.

This is because AEM’s business is mainly driven by delivery orders from major repeat customers as well as new ones for its two key business segments: handler platforms and test solutions for optical fibre cables.

And despite competition heating up, AEM has benefitted from its status as “sole source supplier” and is likely to continue doing so. 

Despite this, AEM has put effort into its diversification plans. These includes delivering a few asynchronous modular parallel smart (AMPS) systems to a memory manufacturer and an equipment order from a major German sensor supplier in the automotive and consumer industries.

In a report dated July 29, Maybank Kim Eng is maintaining its “buy” call on AEM with an unchanged target price of $1.40 as the research house remains bullish on the group’s strong synergies.

“AEM provides strong synergies like field-service capabilities and manufacturing scale for the high-tech companies that it acquires. As it is not a capex-intensive company, improved cashflow from 2016 levels has allowed AEM to pursue highly synergistic acquisitions,” says Maybank Kim Eng analyst Lai Gene Lih.

According to Lai, upside factors for AEM included revenue expansion from securing new customers and increased orders from existing customers, accretive acquisitions and positive customer-related news flow which could translate into improved orders. Downside risks, however, included order cancellations, emerging technology from rivals and erosion of competitive advantages.

Similarly, CGS-CIMB Research is maintaining AEM at “add” with an unchanged target price of $1.23, as 2Q19 earnings had surpassed the research house’s expectations by 62%. However, analyst William Tng exercises caution on FY20 earnings as he notes that the customer may have front-loaded some of its requirements into FY19, which may dampen the group’s prospects for FY20.

As at 4.31pm, shares at AEM Holdings are trading one cent higher at $1.12, which is 8.7 times FY19E earnings and offers a dividend yield of 2.4%, according to Maybank Kim Eng valuations.