AEM - UOB Kay Hian 2023-05-15: 1Q23 Earnings Missed; Uncertain Near-Term Outlook

• AEM’s 1Q23 earnings of S$15.6m (-62% y-o-y) was below expectations, meeting only 18% of our full-year estimate, despite the revenue of S$153m (-42% y-o-y) being in line at 26% of our full-year estimate. The earnings miss was mainly due to weaker-than-expected net margin.
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1Q23 earnings below expectations due to weak net margin.

• AEM (SGX:AWX)’s 1Q23 earnings of S$15.6m (-62% y-o-y) was below expectations, meeting only 18% of our full-year estimate, despite the revenue of S$153m (-42% y-o-y) being in line at 26% of our full-year estimate.
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• revenue from the services segment (which has lower margin) rising 53% y-o-y from increased demand from biomedical and oil & gas customers.
• AEM noted that the exceptionally high revenue in 1Q22 was due to the volume ramp-up of its customer’s new platforms which started to taper in 3Q22. The completion of this volume ramp, coupled with the slow-down of the semiconductor industry in general, resulted in the decrease in 1Q23 revenue.
• The latest guidance appears to indicate a more uncertain near-term outlook, with AEM maintaining its 2023 revenue guidance of S$500m but indicating that it may be revised up or down as second-half visibility becomes clearer. The "down" word was newly added.
• On the other hand, AEM highlighted that the future of the semiconductor industry beyond 2023 has never been more promising and it is seeing positive signs across the industry. Inventory levels are decreasing, and inventory corrections are expected to conclude in late-23 or early-24. Technology nodes are continuing to advance as two of the world’s most advanced new process nodes to be up and generating revenue in 2H23.
• Given the expected decline in testing equipment spending this year, AEM is taking proactive steps to lower operating costs and drive operational efficiency, while doubling down on investments in engineering and R&D in critical areas. AEM’s engagement with new customers is progressing as planned.
• As AEM navigates the short-term headwinds, it is accelerating development of Test 2.0 solutions that will be the key driver of growth in coming years.

AEM’s visibility remains limited to 2H23, yet there are positive signs across the industry.

• Read more at SGinvestors.io.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-05-15 SGinvestors.io

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