For an apple tree, these risks include disease, possibility of drought /fire/war, and potentially wilting. Data-center market competition intensifies with AMD’s acquisition of Xilinx and Nvidia’s acquisition of Mellanox and ARM. Career Opportunities. This comes as no surprise as the firm is known to “time” its announcements over the years to lend support to the price / momentum. Should they prove to be successful, servers due for refresh may replace existing Intel server chips with ARM-based ones and Intel faces the risk of being phased out. Furthermore, Nvidia plans to create products for the server CPU market that combines Nvidia’s AI and GPU offerings with ARM’s offerings. In finance, this exercise (comparable company analysis) aims to understand how much a firm is worth by looking at companies that are similar to it in terms of business operations, geographic exposure, client base, and various risks faced by the company (e.g. If you read till the end, thank you. However, data center competition is starting to intensify with AMD’s acquisition of Xilinx and Nvidia’s acquisitions of Mellanox and ARM. b. Press Releases. On the macro front, a couple of concerns are at the top of my mind: It is hard to predict the extent to which a rotation out of the tech sector, or equity asset class, will impact AEM’s valuation/share price, so we can only take comfort in AEM’s fundamental performance. All things considered (commercial and financial aspects), I will recommend fellow investors with no exposure in the Tech space to BUY AEM near the S$3.2 – S$3.3 range (based on a potential upside of at least 20%). For context, Intel has been dominating the personal computing (PC) segment for years, specifically in the central processing unit (CPU) category. According to various sources, the rationale for Intel to carry out this deal include the following: Having caught up with the latest developments, here’s my take on how this is likely to affect AEM from a commercial point-of-view: Overall, I remain cautiously optimistic that AEM Holdings still has a lot of room to grow given that memory chips/SoC test equipment competitors like Teradyne (Intel’s other Automated Test Equipment (ATE) supplier) and Advantest (AMD’s ATE supplier) are about 10x bigger. AEM’s valuation will likely be challenged due to the rotation out of the Tech sector and the Equity asset class; ARM-based processor’s success in displacing x86 chips will have significant adverse impact on Intel and AMD (x86-based chips); Intel’s ability to consistently roll in revenue and profits from its DC business (given the lacklustre third quarter performance); and. Your viewership makes putting hours into research and writing justifiable. CALL US 8am-5pm M-F PST! In all likelihood, the rapidly expanding DC market and AEM’s new revenue streams from its multiple acquisitions (MuTest, DB Design, UTAC) will likely prop up AEM’s performance. [How to read the table: (1) match exit multiple column with desired discount rate row, (2) intersecting point is the implied share price given those two assumptions –> e.g. However, this threat is mitigated by the fact that not many companies have the resources to do so. Last October, Intel launched a US$20b buyback plan and has also further cut capex in 2020 to US$14.2b – US$14.5b (~US$300m reduction relates to the NAND memory business sale). PC group (Client Computing Group) earned US$9.8b revenue, beating analyst estimates of US$9.09b; Operating margin fell from 44% last year to 36% in 3Q20 as higher volume of the less profitable chips in PC business were sold. General Technical Service gen.tech@aempower.com. Intel’s PC-centric business comes under threat from AMD and Nvidia as competition intensifies. As such, ARM has been the preferred CPU for mobile devices due to its efficiency and design flexibility. FCFF is basically a jargon that means cash that is readily distributable to all stakeholders of the firm (debt holders, preferred shareholders, equity shareholders). Find the latest AEM (AWX.SI) stock quote, history, news and other vital information to help you with your stock trading and investing. To my understanding, Optane performs the same functions as chips in flash-based thumb drives, but (1) runs faster than most flash memory and almost as fast as the DRAM chips used in PCs and servers, (2) has lower latency and (3) has better endurance than NAND flash memory. Stock analysis research and articles on this site are for the purpose of information sharing and do not serve as recommendation of any transactions. However, on 20 October 2020, Intel announced revenue from DCG fell from US$7.1b in 2Q20 to US$5.9b in 3Q20. Intel is understood to be AEM's major customer even though tech contractors such as AEM typically do not disclose the identity of key customers due to confidentiality requirements. This represents another key event that the market will likely react negatively to in 2021. For Aem Holdings, the figure is an eye-catching 38.7%. Meanwhile, Intel prepares for a response in Q1 2021 with its 11th Gen Rocket Lake desktop processors, further intensifying competition in the PC space. By focusing on advanced manufacturing solutions for high-volume, high … The concept of time value of money is such that $1 in the future is worth less than it is today because of inflation, or potential interest to be earned from $1 today if it was saved/invested. Investors should note that AEM will need to invest in hiring more senior executives as it seeks to win new customers. To reduce China exposure ahead of rising trade tensions between China and U.S. AEM will benefit from competition in the PC segment in the short-term as Intel will ramp up chip production to fill the void created by its 7-nm delay and to keep up with AMD (similar game plan to its 10-nm delays). However, Intel has had several hiccups in recent years — including delays on its 10-nm and 7-nm chips, prioritizing share buybacks over R&D, and the restructuring of its technology team which caused its Chief Engineering Officer to leave the firm — all of which allowed Intel’s long-time rival, AMD, to play catch up. This discounts AEM’s efforts to increase the number of revenue streams through various acquisitions (MEMS testing, network cable testing, Camera sensor testing, etc.). Essentially, it is saying the value of the company TODAY is equals to the sum of discounted free cash flows to firm (FCFF) in the next 5 years + the value of the business based on existing public market valuations in 2024 (discounted to present day). The below table shows us that there is still a good margin of safety at the current price of S$3.47 (as at 23 October 2020) and AEM will be a good buy if it dips to S$3.0 – S$3.3 range. Beside supercomputing, this acquisition will allow Nvidia to compete in the data center space by allowing it to offer complete platform solutions alongside its GPUs offerings for ML, AI, cloud and big data applications. You will need to make your own independent judgment regarding the analysis. Any time from now till then, if prices rise to the S$4.00 range, it will probably be a good time to take profit and wait for the eventual dip. AEM Performance Electronics 2205 W 126th Street, Unit A Hawthorne, CA 90250 (P) 310-484-2322 (F) 310-484-0152. UTAC and AEM announce plan to jointly develop next generation of CMOS Image Sensor Test Systems and Solution - May 30, 2020. AEM’s major customer has been building up its presence in other segments, such as server chips, given the sustained decline in the computing market. Rapid total addressable market expansion, coupled with new revenue streams from AEM’s recent acquisition is likely to prop up AEM’s performance in at least the next 2-3 years. The greater worry is the possibility that other customers may also adopt an approach of designing their own chips. Sign up for our Newsletter Get our latest product and … High Return on Capital Employed - the measure of a company growing efficiently and profitably. Following the sell-offs sparked by insider sales and global tech selloffs, AEM announced that it is raising revenue guidance from S$460m – S$480m to S$480m – S$500m for FY2020. Intel shifts focus to data-centric business but delivers disappointing Q3 2020 results for its data-centric business. Intel Corporation happens to be a key customer contributing 80% – 90% of its revenue. And second, a quick discounted cash flow (DCF) analysis to determine what AEM is “actually” worth. While it is irrefutable that Intel WILL LOSE DATA CENTRE MARKET SHARE, it is equally important to consider that it will be doing so in a rapidly expanding market. Based in Singapore, AEM serves its customers 24/7, across the entire manufacturing lifecycle, using its network of factories and field support locations worldwide. As this article is becoming quite lengthy, I will try to keep this section as succinct and informative as possible. Demand from new customers are also likely to ramp up production for AEM in 2020. This was swiftly accompanied by a 1.5 million share disposal (1 million indirectly held) by James Toh Ban Leng, who is the single largest shareholder and a NED/ID of AEM Holdings, and also the Founder and NED of Novo Tellus. AEM Holdings Limited is a Singapore-based company, which offers application specific-intelligent system test and handling solutions for semiconductor and electronics companies serving computing, fifth generation (5G) and artificial intelligence (AI) markets. With CSPs being the largest client segment in the data center market and for Intel’s data-centric business (accounting for 47% of DCG’s revenue), this development is quite concerning for Intel. Sales Department sales@aempower.com. Forbes reported back calculations showed that the Optane unit was making loss of US$2b in 2017, US$2b in 2018, and US$1.5b in 2019. In August 2020, Nvidia acquired ARM to extend its product line into the CPU segment. Why is Intel selling the NAND business? With CSPs being the largest client segment in the data center market and for Intel’s data-centric business (accounting for 47% of DCG’s revenue), this development is quite concerning for Intel. Other key updates on earnings: a. Nvidia acquiring ARM to challenge Intel in DC market. Comparable Company Analysis: Selected Global SoC Test Handler Equipment Providers. If you do not care about timing the market, the huge margin of safety (based on my conservative estimates) should provide enough comfort to buy into AEM Holdings. Well, no. AEM Holdings (SGX:AWX) raised FY20 revenue guidance to SGD480-500m from SGD460-480m. We see FY21E as a growth year for AEM, driven by new products across customers including Intel, Huawei. Since the August-high of S$4.29 (closing price), AEM’s share price has fallen by about 19% to S$3.47. Downgrade To SELL, Singapore Telcos - CGS-CIMB Research 2020-12-10: Back Online In 2021F, Singapore Retail REITs - DBS Research 2020-12-09: Defend & Conquer, NanoFilm Technologies - CGS-CIMB Research 2020-12-16: Key Takeaways From Virtual NDR, Top Glove - DBS Research 2020-12-10: A Befitting Windfall; Strong Demand Continues, CapitaLand Integrated Commercial Trust - Maybank Kim Eng 2020-12-15: Proxy To Recovery, Rubber Gloves - UOB Kay Hian 2020-12-18: Prospects Are Intact But May Be Weighed By Sentiment, Singapore Stock Alpha Picks (Dec 2020) - UOB Kay Hian 2020-12-07: Reshuffling After A Strong November; Drop DBS, Short SIA, Add Nanofilm. From the past usually up fast and furious always accompanied with big quality take up such as 50, 100, 200 lots : Useful To Me Not Useful To Me: easywin Elite 16-Dec-2020 14:51 easywin About Contact Quote this Post! AEM revised revenue guidance from S$460m – S$480m to S$480 – S$500m will likely be ignored by the market. They make your CPU chips which are widely used in almost every single computer or laptop you can find in the market. Teradyne and Cohu are NASDAQ-listed while Advantest is listed on the Tokyo Stock Exchange (TSE), making them much more accessible to global investors (i.e. According to the 2019 Annual Report, Loke Wai San had approximately 3.4 million options outstanding as at 31 December 2019; James Toh had none. Thus, we apply a “discount” on the projected future cash flows to account for these risks and opportunity cost of investing in an Apple Tree, as we would for a company. AEM Holdings Ltd (AEM SP/AWX.SI) ... key customer’s business strategy, AEM’s new acquisition, and an inclusion of a bull case scenario. About AEM Electronics. If you enjoy reading the article and find it helpful, please consider subscribing to The Hatch Fund’s newsletter to get the latest notifications and insights! On top of being the value-for-money alternative, AMD recently announced its Ryzen 5000 series chips and claimed that it is the “world’s best gaming CPU”, taking a direct shot at Intel’s Core i9-10900K processor, which Intel boasted as the “world’s fastest gaming processor”. Intel’s market leadership in the PC and DC segments are not only under threat, but may also be rendered redundant by ARM-based processors; The release of COVID-19 vaccines and treatment will likely spark a rotation out of the Tech sector, which will adversely affect AEM’s share price; Post-pandemic, interest rates will likely be raised to curb inflation arising from increased employment levels, U.S.-Sino trade tensions. The main concerns that stop me from recommending a strong buy include the following: If you care about timing the market (like me), I expect valuations to dip once vaccines finish their final stage of trials and become distributed. UOB Share Price, In this post, I look at the latest developments for AEM and its wider industry (integrated chip (IC) / personal computing (PC) / data center (DC)), before revisiting its financials/valuation to determine if it is still worthwhile to hold on to it. Furthermore, the acquisition of ARM will likely bring revenue synergies as the combination of CPU and GPU businesses will allow Nvidia to create better integrated designs. Intel is planning to sell its NAND memory business to SK Hynix. Looking at AEM’s historical valuation multiples (chart below) shows us that the company has never traded near these multiples suggested by its peers and will likely remain in this range going forward. The sale of Intel’s NAND memory business might bog down AEM’s sales in the near term as there will be less chips to test post-deal, and hence, less consumables will be required (given the Optane is of smaller size). AEM Holdings Ltd (AEM SP/AWX.SI) 5.1 November 5, 2020 KGI Securities (Singapore) Pte. x 0 x 0 Alert Admin: AEM the volume so low unlikely moving up with such a small quantity eatup. - A 5-year average ROCE of more than 12 percent is a pointer to strong efficiency. Importantly, the chart below shows Intel was making losses in 4Q17, 3Q18, 2019 and 1H20 when most of its peers were enjoying a healthy operating margin. b. AMD looking to acquire Xilinx for FPGA technology, Akin to Intel’s US$16.7b acquisition of Altera in 2015, AMD’s proposed acquisition of Xilinx for US$30b is aimed at moving AMD’s focus from desktops and consoles to FPGA technology, which are crucial to server chips used in data centers. The remaining assets, including IP related to manufacture/design of NAND flash wafers, R&D staff and Dalian fab workplace will be acquired upon final closing (expected to occur in March 2025) for US$2b. Strategically, AEM significantly bolsters Alliance’s growing national presence, and provides increased capabilities to respond to complex, challenging emissions monitoring and testing projects. Market Cap (S$ Mn) P/B (x) Current FY20F FY21F Current TTM FY20F AEM HOLDINGS LTD AEM SP SGD 3.47 979 10.1 10.2 9.4 4.9 163% 7.8 6.6 - 76.2 102.8 … i. We raise FY20-22E EPS by 5-7% to account for this. This was an unexpectedly long article! AEM’s revenue and profitability margins are pegged to analyst consensus estimates for FY2020, FY2021 and FY2022. While best efforts are made to ensure the quality of our content, The Hatch Fund will not be liable for any gains/losses arising out of any recommendations made. Effectively, both AMD and Nvidia are closing in on Intel and starting to chip away at its market share in the DC market. downside is significantly more than upside) in the longer term for the following reasons: This is not to say that AEM’s performance will collapse as Intel loses market share, but I expect the market to take this news badly and oversell AEM. The exact exercise price of the share options are undisclosed, but they range from S$0.196 to S$1.142, which represents a c.220% to c.1700% discount to the current market price. Leading-edge HDMT technology has helped its core customer achieve 2x savings in chip-testing costs. If in doubt, please seek advice from your legal, financial, tax, or other professional adviser(s). Regardless of how rosy MEMS, 5G, IoT or AI trends look, I will prefer to err on the side of caution and continue to monitor developments in this space. Outsourcing of manufacturing may lead to testing being outsourced as well — although the probability is likely low as Intel has co-developed equipment with AEM for more than 10 years now, and AEM’s equipment has reduced Intel’s costs significantly. Riverstone Share Price Comparable Company Analysis: Selected APAC Semiconductor Test Handler Equipment Providers. Also, we have to account for the risks associated with buying and growing Apple Tree X. GOT QUESTION? Shares of AEM Holdings, one of the hottest stocks of the moment, continue to move along an all-time high price, ... year-on-year increase in revenue to S$146.8 million in the first quarter on the back of increased orders from its main customers for tools, consumables, and services. This list is split into two groups: (1) global comparable SoC test handler equipment providers, and (2) APAC backend test equipment providers. In the event that you choose not to seek advice from such advisers, you should consider whether the product in question, or any course of action recommended, is suitable for you. Customer concentration remains high (85%+ of revenues linked to one of biggest IT companies globally) but new growth opportunities with Huawei and Novoflex could potentially add meaningfully to earnings and customer diversification as of FY20. For the uninitiated, AEM Holdings is a SGX-listed company that provides back-end test equipment to a variety of customers. Being a company with one of the strongest financial performance in SGX and being the darling of the SGX (Bloomberg, BusinessTimes, StraitsTimes), AEM needed a jolt to help in its dip. Furthermore, if rumors of Intel outsourcing its chip manufacturing crystallizes, it will also provide a boost to the demand for test handler equipment, further lifting AEM’s performance. OCBC Share Price, Glove/PPE makers: a. In this post, I hope to take a closer look at what has transpired over the last two months and to re-evaluate if AEM is still a sound investment. AEM adds customized tester development capabilities as it acquires 100% stake in Automated Test Equipment (ATE) company – Mu-TEST - Jan. 28, 2020. High Return on Capital Employed - the measure of a company growing efficiently and profitably. AEM’s Executive Chairman Loke Wai San commented, “We are thrilled that the team at DB Design is now part of our AEM family. While I want to be convinced that these insider transactions may be nothing more than some astute investors timing the market, it is important to remain objective in evaluating if the insiders are exiting because of AEM’s prospects. So why is Intel selling its NAND business? AEM Holdings (SGX: AWM) is an equipment solutions provider to largely semiconductor industry with some exposure to 5G as well. With assumptions of growth rates, margins, exit multiple and discount rates made, we get an implied price per share of S$3.90. All opinions/statement are made based on public information only. Please check your email for further instructions. Aem Holdings (AEM SP) reported solid FY18 results and gave a decent outlook for FY19. For Aem Holdings, the figure is an impressive 19.9%. The Hatch Fund is not a registered investment, legal or tax advisor or a broker/dealer. We believe these are opportunities to BUY on dips, given, Key risk to our view is if Intel loses more market share than expected, which may result in lower demand for. Isn’t that free money? Intensifying competition in the PC-centric space (particularly CPU) is likely to push Intel to accelerate the development of 7-nm chips as well as other top-tier and mid-range chips to rival AMD. While I have not followed this market for long, it seems clear that engaging in acquisitions to break new ground is the name of the game. EMS Technical Service emstech@aempower.com . 52 Serangoon North Ave 4 Singapore 555853 . 2205 W 126th Street, Unit A Hawthorne,CA 90250. b. Here, we bring in the concepts of (1) time value of money / opportunity cost, and (2) risks. By focusing on advanced manufacturing solutions for high-volume, high-growth products, AEM has established valuable and long-term partnerships with customers, and maintaining its position at the forefront of manufacturing innovation. Nvidia has long been the leader in the graphics processing unit (GPU) market (FYI: GPU vs. CPU). While 5G, AI, IoT, increased internet penetration, social media and content consumption (IPTV, OTT) trends will drive the need for data centers and edge data centers in the future. are major customers of AEM Holdings and Qualcomm is a potential customer. As competition in the PC segment heats up, Intel is looking to shift its focus to the more profitable data-centric business (Data Center Group (DCG) and other data-centric business segments), which collectively accounted for ~50% of Intel’s total revenue in 2Q20. In Intel’s 2Q20 earnings announcement, the Company mentioned that its Optane memory business has finally reached break-even, which is an encouraging sign for Intel as Optane will be retained after the NAND memory business sale. Here, an exit multiple of 7.7x EV/EBITDA in FY2024F and WACC (discount rate / hurdle rate as discussed earlier) of 10.0% are assumed. Become a Dealer. (310) 484-2322. - A 5-year average ROCE of more than 12 percent is a pointer to strong efficiency. And that came in the form of Executive Chairman, Loke Wai San, selling a combined c.1.2 million shares of AEM (announcement 1, announcement 2, announcement 3). SingTel Share Price, Additional capital expenditure is likely to be incurred for chip testing, which will benefit AEM in the short-term. Thank you! But while this sounds good, it seems that the Company has generally prioritized share buybacks over investments in R&D and CAPEX. 1.5 million share disposal (1 million indirectly held), caused its Chief Engineering Officer to leave, response in Q1 2021 with its 11th Gen Rocket Lake desktop processors, ditches Intel’s x86 chips for its own ARM-based processors, acquisitions to break new ground is the name of the game, announced the sale of its NAND memory and storage business to SK Hynix for US$9 billion, exit its chip manufacturing business and outsource it. However, I want to compare apple to apples in the first parse. Post-deal, Intel will retain its smaller Intel Optane memory business, which houses the 3D XPoint memory co-developed with Micron. An unclear path to restore market leadership and a seemingly inevitable fall in valuations across the sector/market will continue to keep me on my toes. AEM is a global leader offering application specific intelligent system test and handling solutions for semiconductor and electronics companies serving advanced computing, 5G and AI markets Listed on SGX Market Cap ~S$600m AEM Holdings Limited (AWX.SI) Revenue 2018 : S$262.3m 2019 : S$323.1m 1Q20 : S$146.8m 2020 : Guidance of S$360m - S$380m Singapore Share Investors | SGX Stock Analysis | Analyst Research Reports | Singapore Investment Blogs | Singapore Stock Market News | SGX Stock Picks | SGX Share Price | SGX Stock Forum | Singapore Stock Recommendation | SGX Stock Recommendation, STI Constituents Share Price & FTSE ST Indices, DBS Share Price , The market reacted to its revision in a rather muted fashion. This is akin to saying Apple Tree X is worth $10 today because it will likely bring in $1 every year for the next 15 years. We now value AEM Holdings at 14x FY21E P/E, from ROE-g/COE-g derived 5x blended FY20-21E P/B, to better account for: . b. Nvidia acquiring Arm for US$40B: Market is moving away from x86 to ARM architecture, posing a huge threat to Intel’s long-term viability in PC business. Below are the selected comparable companies. In the coming months/years, it will be important to keep an eye on the success of these ARM-based processors in executing DC operations. Intel’s long-standing lead in the CPU market is increasingly coming under threat from AMD (selling more value-for-money and faster high-end CPUs) and Nvidia (following the announced acquisition of ARM). Recently, the use of ARM-based CPUs in computers has also been catching on. To practise conservatism, I made the following assumptions: As the target price is very sensitive to discount rate and exit multiple assumptions, I co-varied them to find out the intrinsic value in each scenario should my assumptions be inaccurate. While ARM plays in the CPU market, it is largely different from Intel and AMD — Intel and AMD design and manufacture their chips for direct installation onto a motherboard; On the contrary, ARM designs the silicon and architecture upon which allow chip manufacturers to have more customizations, giving extra flexibility to have chips designed around a product rather than the other way round. Downgrade DBS OCBC UOB To SELL. New Products. We help our customers deliver many of the most successful products in the 5G economy including microprocessors, high speed communications, IOT devices, and solar cells. For Immediate Release . Verdict: HOLD/Exit at a higher price and buy on the dip (to monitor ARM-based chip’s success). To ARM-based processors to benefit Nvidia at Intel ’ s advantage as more will... 1 x 15 ), their distribution/manufacturing, or other professional adviser ( s.... ( SGX: AWX ) raised FY20 revenue guidance to SGD480-500m from SGD460-480m be produced and hence. 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