<News Analysis> AEM – Manufacturing space in Singapore, Malaysia, and US to double
- Boosting R&D capabilities with the expansion of R&D centres across Singapore, Penang, and the US
- The new facilities, expected to be operational by end 3Q22, will double AEM’s manufacturing space in the three countries
- The expansion increases AEM’s ability to scale and well positions the group to leverage on growth opportunities
- Maintain BUY with TP of S$6.04
What’s New
- AEM announced that it is boosting its research and development capabilities (R&D) with the expansion of R&D centres across Singapore, Penang, and the US.
- AEM’s expansion in Malaysia comprises an R&D lab that will allow AEM to enhance its R&D capabilities. Headcount in Malaysia is expected to double to support the expansion. The expansion in Singapore will be focused on R&D while the US expansion in Arizona and California goes beyond R&D to include prototyping and manufacturing.
- The new facilities will double AEM’s manufacturing space in the three countries and they are expected to be operational by end 3Q22
Our Thoughts
- The expansion enables AEM to scale up to meet increasing demand for testing and handling solutions. With more systems and devices used for mission-critical applications and increasing die complexity, systems level testing (SLT) becomes increasingly necessary. In our view, AEM will be much better positioned to leverage on growth opportunities from growing demand of SLT and acquisitions of new customers.
- Increased investments into R&D allows AEM to remain competitive and cement its position as a leader in test innovation.
- We believe that the expansion signals the strong confidence of the company in its growth prospects.
- With the focus on R&D on more value-added capabilities, we can expect margins to improve going forward. However, the impact will likely be felt in FY23 onwards given that the new facilities will only be ready in end 3Q22. We have assumed net margins of 15.9% and 16.1% for FY22 and FY23 respectively
- In FY22, we have assumed capex of $8m, down from $17m in FY21, excluding the CEI acquisition. We believe part of the capex should have been factored in FY21, which is much higher than $5m in FY20 (excluding acquisition of subsidiaries).
- Maintain BUY with TP of S$6.04. We expect strong growth this year with revenue growth of 37% y-o-y due to the ramp up of next generation of handlers to AEM’s key customer.