AEM share price to sink or swim with Huawei ban?

The recent explosive bull run of AEM share price had led to a flurry of target price upgrades by various analysts. The surging form of AEM share price was attributed to the stellar first quarter business results that saw the company hitting a record revenue of $146.8 million and net profit of $36.1 million.

Indeed, the rate of ascend of AEM share price is so breath-taking that investors must be pinching themselves to check it is for real. Is this form even sustainable against the backdrop of COVID-19 pandemic and rising tension between US and China? Will the unfolding trade war between US and China throws a spanner in the works for AEM share price?

AEM share price

To be sure, the recent US rule to ban Huawei Technologies’ access to non-US chipmakers will have some impact on AEM share price. But make no mistake, this is actually the second phase of the trade war concerning export control on Huawei.

AEM share price to hit $50 on NASDAQ listing?

AEM share price in explosive bull run!

In May 2019, US banned US chipmakers from selling equipment to Huawei. Intel was one of the companies hit by that move. Huawei, being the world’s largest telecommunication equipment company, reportedly spent a whopping USD11 billion on Intel, Qualcomm and Micron Technology. Given that Intel is purportedly AEM’s biggest client, AEM share price was badly affected back in 2019. AEM share price rolled off the cliff, from $1.15 in May 2019 to $0.85 in June 2019. However, that development was in 2019 and current AEM share price should have factored in that event.

Fast forward to May 2020, US is restricting export control to Huawei. This time round, the ban centred around Huawei’s access to non-US chipmakers. Admittedly, this ruling will have some impact on the growth momentum of AEM. In October 2018, AEM received an initial order from Huawei for AEM’s optical fibre cable-test solution. But in the latest AGM updates, AEM revealed that sales for FY2019 amounted to merely $2.9 million while FY2018 saw $1.0 million of sales. Thus, the impact should be less than 5% of FY2020 sales.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. As of 11 May 2020, I am vested in this counter (holding 10,000 shares at $3.35).

AEM share price lost steam?

With a 5-year beta of 2.38, AEM share price is one of the most volatile counters in SGX. So those who bought this stock must have a high tolerance for volatility. Otherwise, they will have difficulty sleeping at night. Since reaching a high of $3.37 on 19 May 2020, AEM share price had shed about 11% to reach $3.00. Did I overpay for AEM shares? Based on my calculation, I do not think so.

On 6 May 2020, the company announced that it had secured $416 million sales orders for delivery in FY2020. On comparison, the revenue recorded for FY2019 was $323 million. Of noteworthy is that the revenue for Q1FY2020 was only $146.8 million. The company also announced revenue guidance to be between $430 million to $445 million for FY2020. In view of these factors, the next three quarters should see [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: May 25, 2020 — 2:19 am

2 Comments

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  1. I have to confess to missing the bull run. I caught it at 1.3x but went away with <20%. Overwhelmed by the overall market sentiment. When relooking, it almost reached 3. So big a mistake! Recently, it seemed to reach a plateau before moving up again?

  2. Hi Leo,

    Yes, AEM share price seems to have stalled in recent days after the euphoria from the Q1 results. I believe the coming 1H results will be good as well and lend further support to the share price. This is because of the record sales order. Based on the residual TAM, the delivery of HDMT equipment to Intel should continue till end FY21. Thus, within these two years, AEM share price should continue to be bullish. Just my opinion and I am vested.

    Regards,
    Gerald
    https://www.sgwealthbuilder.com

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