Investing, Reflections
My 5 Key Takeaway From AEM Holdings 1H 2020 Results
5 August 2020
1. Half-Yearly Revenue Increased by 58.6%
Source: AEM
AEM revenue was $172.5 mn in 2H19 which consisted of 54% from tools & machines with 46% from consumables & services.
In 1H20, total revenue increased by 58.6% to $273.7 mn consisting of 51% tools & machines and 49% consumables & services.
It is an impressive top-line growth rate no matter how you look at it.
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2. EPS Also Grew 79.5%
Source: AEM
What is even more impressive is not only the top-line growth of AEM but also it’s bottom line.
Earnings per share (EPS) grew 79.5% from 11.2 in 2H19 to 20.1 in 1H20.
That is an amazing growth rate.
This shows that the increase in revenue actually goes to the bottom line back to shareholders. And it might indicate that they have slight economies of scale due to a higher eps growth rate as opposed to revenue growth rate.
3. As of 1H20, Most Earnings Paid Out As Dividends
Source: AEM
Based on AEM 1H20 reports, their cumulative capital allocation breakdown from 2017 to 1H2020 is as follows:
Dividends – 47%
Acquisitions – 25%
Capex – 18%
Buybacks – 10%
It is interesting to note that AEM gives out quite a lot of its earnings as dividends instead of retaining it and re-investing it in the business.
Read also: Kodak Stock is Up Over 1,400% in Two Days. Does It Make Sense?.
4. 5 Cents Per Share Dividend for 1H2020 is 25% Payout Ratio
Based on the AEM press release, it’s 5 Singapore cents per share of interim dividend represents a payout of only 25%.
That is in my view a safe payout ratio.
It leaves enough capital to reinvest in the business.
5. Improvement Opportunities Differ for Next 10 Years
Source: AEM
In the past 10 years, 40% of the improvement opportunities come from improving their process technology.
In the next 10 years, only 29% would come from improving their process technology.
42% of future improvement opportunities would come from the Assembly side of things such as 3D stacking, multi-chip architecture, and memory integration.
In Conclusion
It has been a spectacular result for AEM holdings in the first half of 2020.
It’s price to earnings ratio is not too high which is in the range of 13 right now and while it seems to have a great prospect ahead, it’s high customer concentration is a cause of concern for me.
Also read: Thinking, Fast and Slow Book Summary (What I Learnt As An Investor).
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Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
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