Micro-Mechanics, Venture, UMS and AEM are four semi-conductor and electronics manufacturers in my portfolio. In total, they take up about 17% of my portfolio. While the four groups serve different sectors and I bought them for different reasons, the big idea is my belief in the long term trend of digitalisation which will benefit all of them.

Micro-Mechanics reported their Q2 results at the beginning of the month and I wrote about it in this post. In brief, there is a general weakness in demand with the situation worsened by the lock-down in China. In this post, I will share my views on AEM and Venture which reported their FY2022 results in the past week. UMS should report their results today and I will review their performance in the next few days.

Record year for AEM but near term headwind

AEM reported a huge drop in revenue and net profit for Q4 but that is not unexpected. As late as Q3 update, it has guided revenue of $820 mil to $850 mil. Once again, they are ahead of their own estimate with the reported revenue of $875 mil. What probably caught a lot of people off guard is their cautious guidance of $500 mil top line for FY2023. While I wish they can give a higher guidance, I have no qualm with the lower forecast due to the following reasons.

  • Semiconductor industry is known to be cyclical and I do think the cycle is getting shorter.
  • They are working towards diversifying their customer base and are making good progress.
  • In the two years I have invested with AEM, they always exceed their estimates, so the $500 mil provides a base,
  • I am investing in AEM for mid to long term. Given that I invested in AEM with my CPF, it is even more likely for me to do nothing about it. So I am alright with the short term fluctuation in its business and share price.
  • Finally, AEM takes up less than 3% of my portfolio, so the downside is manageable.

A glimpse at their 2021 annual report reminded me of their revenue of $519 mil and EPS at 35.1 cents for FY2020. Assuming FY2023’s revenue is indeed at $500 mil and EPS drops to 30 cents, then the current price of $3.08 would value AEM at a forward PE of only 10.3x. This to me is cheap, given that they have guided for secular growth in 2024 and beyond.

Assuming a 15% growth rate from 2024, then PEG is less than 0.7. Of course things might not turn out as guided and there might be further macro headwind that is not foreseen even by the insiders. Such risk is expected and investors can mitigate it simply be capping its exposure to the counter.

With the little I have available in my CPFIS for buying shares, I decided to add on to my position when its price plummeted by 10% yesterday.

Resilient Venture continues to grow!

Despite the challenging macro conditions, Venture has shown its resilience and continued to grow both its top and bottom lines even in Q4! This results in a strong performance for the year that is at a similar level before pandemic.

Initially I was disappointed that the group did not increase its dividend. Upon further analysis, I believe the management must have other considerations.

They are not stingy with their dividend and did not decrease dividend in FY2020 and FY2021 despite lower net income. For reference, the table shows their dividend payout over the past 5 years.

Payout Ratio59%70%73%56%55%

The group does not have a formal dividend policy. However, the following paragraph from 20201 Annual Report indicates their thinking of dividend. Together with their action over the past few years, I am confident of a sustainable dividend going forward.

At the time of writing, it is trading at $17.25, giving a dividend yield of 4.3%. The increase in dividend will eventually come if the group continue to do well. I am holding on to my current stake.