AEM Holdings $SGX-AWX - Post Result, Temasek Investment and Investor Briefing Note

About 1.5 weeks ago, AEM Holdings announced 1H 2021 result and subsequently announced a 103 million SGD investment by Temasek. The "soft" result is not a surprise and expected by many as management had guided for a stronger 2H 2021 derived from its next generation products and tools for Intel.

Additionally, I attended the briefing, here are some key takeaways:

1) AEM again reminded everyone that they had been in talks with more than 10 of the top 20 global semiconductor manufacturers on both equipments and consumables. Different clients are at different stages of engagements. Some are still in the lab stage, some in verification / validation stage while others are in production stage. I believe AEM is very close in securing a new customer win and this would be a big catalyst to re-rate the company which up to today, is somewhat being held back from concentration risk.

2) Chairman Wai Sun & CEO are both excited about ATECO (subsidiary)'s customer win in the memory space. This had lead AEM having engagement with those customers.

3) Revenue Guidance in tact, its backed by orders and inventory levels. Risk to derail the guidance is supply chain disruption.

4) Chairman Wai San had no comment about future listing elsewhere to close the valuation gap, but it does seem like something they're well aware. Personally won't be surprised if AEM will be dual listed in Nasdaq post achieving usd1b valuation. do note that SGX and NASDAQ in 2020 agreed to make dual listing easier between the 2 exchanges.

5) A big chunk of the briefing was to touch on Temasek's investment. Temasek will now be AEM's largest investor at 9.5%. In the call, many asked on why did they do it, what synergies to come out of this and what the money will be used for. CEO highlights 2 important matters apart from having more money to the balance sheet:
a) Temasek investment highglights that they believe in the long term growth story of AEM and more importantly, the innovation / the highly differentiated offering AEM has. CEO Chandra Nair explained that Temasek Understood the important changes in the industry and believed in AEM's ability to deliver to the market to do a new way of testing… More on System Level Testing later on.
b) Temasek's strong network will help to bring their products into the market and hopefully will help general valuation of the co in the long term, as more n more companies working wf their products n solution. Mr Russel from Temasek now sits on the board. He had a vast experience and strong network in the industry, and is an ex - Applied Material, working there for decades.

More M&A will happen as well if it's in line with their roadmap.

6) System level test. Both Loke Wai San and Chandra Nair went a great length to explain why AEM is the best at SLT, even when comparing with Advantest and Teradyne. Chandra Nair on SLT:

"AEM is probably the only company in the world with over a thousand systems that have been running for a decade -- of course various versions of it and we continue to deploy new versions -- so we probably have the most experience of any company in the world in what it takes to do system level tests..

Now, as system level test is becoming a need and not a want right -- I mean not just good to have -- it is becoming an absolute need for companies that provide high performance computing, application processors that are used in things like mobility devices and so on and of course in the automotive space, these companies have to make sure that they can test in volume before their chips go out to the market or to their end customer..

Our track record to be able to deliver highly reliable testers is one part of our differentiator. The next part is the fact that over the last three years we have invested tremendously in the future of system level tests, so we have the world's leading active thermal controllers..

What this means is, as chips become more complex, as the power and heat dissipation needs of these complex chips are very hard for companies to handle, we probably have the best solution for our customers to be able to do this active thermal control that they need, the ability to test reliably in volume..

And the fact that we continuously invest in meeting the future needs of the customer are probably some of the biggest differentiators..

In addition to the technology that we bring, the pedigree and the reliability we bring, is also the fact that we have a very strong presence of field engineers all over the world, where they are very close to the customer, understanding their needs and at the customer sites 24/7 to ensure reliability, and understanding what are the bottlenecks they see, feeding that back to our engineering teams and us continuously improving the solutions our customers get..

In addition to that, as one goes into system level tests, as each company comes out with their own application-specific chip to service their end users, there's a strong embedded DNA in our company to be able to take these common technology pillars, configure them together and create the exact test system that is perfect for that customer's use..

Most other companies come from the other side of the spectrum where they say this is the standard product, and really you need to make your tests meet our needs. That storyline now does not fly with the customers because as they do system level tests on highly application specific chips themselves, they need companies that can address their needs to be able to customize where needed and quickly..

So this is where companies like CEI that we acquired this year, we can have a very quick turn to be able to quickly design, prototype and deploy what the customer needs and this is another big differentiator in our ability to take our solutions to market and deployment..."

7) Lastly, Chairman Loke Wai San mentioned with regards to SLT, CEI acquisition and Temasek - that AEM products and services is Semi customised and structured from day one to deliver on time without downtime / stopages, to reduce the cost of test for its clients. On CEI, availability and quickturn is the keyword as to why the company embarked on this acquisition, on top of monetising the consumables in SLT. He mentioned that as in the era of semiconductor 2.0. things are going beyond moores law and going to heterogeneous integration and packaging. There's a great clarity when discussing this with Temasek on the future roadmap and challenges for frontend and backend equipment players are. They can Observe it or act upon it. The fund raise from Temasek will enable AEM to act globally upon it.

I came out from the briefing feeling optimistic. AEM is a really well run gobal company, bound for re-rating. My fair value may even be conservative once re-rating happens and when more funds are able to buy the stock.

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