Shortfall in inventory could put FY23 into the red
AEM has detected a 5-7%, or c.S$17.9-25.1m shortfall in inventories following a preliminary inventory stock taking exercise. This has been attributed to human error in transactions with the ERP system as AEM migrates production from Singapore to its Penang facility. AEM expects a negative impact on FY23 net profit.
We see two possible scenarios with a higher probability of the first scenario (i) AEM is able to partially fulfil its orders (ii) AEM is unable to fulfil any orders arising from the shortfall in inventory. In the first scenario, we could see a c.2% trim to our revenue estimates but could put AEM into the red for FY23 at -c.15m owing to higher cogs computations. In the second scenario, we believe that AEM could sink deeper into the red with further trims in top lines.
We expect sentiment to be negative, translating to a downward pressure on share price.
We currently have a HOLD call with TP S$3.00 due to a lack of strong catalysts. Nonetheless, we reiterate our long-term positive view on AEM for its technological superiority in SLT.
