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.
