Inventory shortfall: Key highlights from the analyst briefing
- The 5-7% inventory shortfall is attributed to human errors in transactions, specifically with data entry into the ERP system. The inventories in relation to the shortfall are a combination of raw materials, WIP, and finished goods. There is no impact to the non-cancellable purchase orders estimated at c.S$280m for the key customer.
- AEM sees no impact to sales or production. Impact on P&L will be through COGS, corresponding to the 5-7% shortfall in inventory. We believe that AEM is still likely to be in the red with a net loss of S$5-6m in FY23.
- Errors were detected towards the end of last year and not in relation to the short tenure of the COO.
- AEM is reviewing its systems and processes and will provide greater clarity on their plans during 4Q23 results release.
- We believe that the negatives have been priced in with a c.-7% correction in the share price yesterday. We retain our HOLD call with TP S$3.00 in the absence of strong near-term catalysts. We also reiterate our long term positive view on AEM for its technological superiority in SLT.