Two substantial shareholders of AEM Holdings have raised their respective stakes in the company, taking advantage of the weakness of its share price following the company’s full-year earnings announcement.
On March 2, Malaysia’s Employees Provident Fund Board acquired 1.11 million shares on the open market for nearly $3.1 million, which works out to $2.78 each. With the acquisition, the EPF now holds 28.86 million shares, equivalent to a 9.35% stake. Separately, Scottish fund manager Abrdn on March 2 acquired 745,900 shares on the open market for nearly $2.08 million or about $2.78 per share. This brings its total stake to 25.24 million shares or 8.179%.
Amid the weaker outlook for the semiconductor industry, AEM has given guidance for revenue of around $500 million for FY2023 ending December, significantly lower than the record $870.5 million reported in FY2022.
In line with the weakening semiconductor industry worldwide, AEM has reported softer numbers, reporting 30% lower y-o-y earnings of $43.9 million in 2HFY2022.
With no prospect of an immediate recovery, analysts see a “year of headwinds”, although they are maintaining their optimistic outlook about AEM’s longer-term future.
DBS Group Research’s Ling Lee Keng sees “testing times” ahead and has downgraded her call from “buy” to “sell” and cut her target price to $2 from $3.19.
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Separately, Maybank Securities analyst Jarick Seet is keeping his “sell” call as he sees further downside ahead for AEM. He has also cut his target price to $2.66 from $3.08 previously.
Third-gen raises stake
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Renaldo Santosa, Japfa’s executive director, has raised his stake in the company. He is the son of Handojo Santosa, the company’s executive chairman, who passed away last September, and grandson of the family patriarch, Ferry Teguh Santosa.
On March 6, Renaldo acquired 500,000 shares for $121,718.20 on the open market. This works out to an average of 24.3 cents for each share and brings his total interest in the company, held jointly with his sister Gabriella, to around 1.24 billion shares or 60.72% of the company, up from 60.7% previously.
Analysts have recently downgraded Japfa following weaker than expected earnings. While revenue grew, costs went up by a bigger magnitude. Coupled with prospects of a prolonged industry downturn, investors ought to brace for lower chances of a quick recovery.
In 4QFY2022 ended Dec 31, 2022, Japfa reported a core net loss of US$31.1 million ($42.1 million). While its China dairy business reported a profit, its chicken farming business in Indonesia made a loss and its pig farming business in Vietnam took a hit too.
For the whole of FY2022, Japfa reported earnings of US$8.2 million, down from FY2021’s US$118.8 million. Revenue in the same period stood at US$4.4 billion, up 6.6%. The company plans to pay a dividend of one cent.
“The deterioration in profitability was a confluence of factors, including weak average selling prices for poultry and swine that have not kept up with the rise in raw materials across Japfa’s protein business, as well as the spread of African Swine Fever affecting its swine fattening operations in Vietnam in FY2022,” writes CGS-CIMB analyst Tay Wee Kuang in his March 3 report. According to Japfa, the swine flu caused a direct hit of US$20 million.
Meanwhile, the chicken farming business faces an oversupply situation, which Japfa attributes to inflationary pressures which have dampened consumer demand in Indonesia. The sluggish selling prices of the chickens will only recover in the second half of this year, says Tay, who has lowered his call from “add” to “reduce” and cut his target price from 42 cents to 24 cents.
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UOB Kay Hian, in its March 7 report, assumes that the pig farming business in Vietnam will continue to suffer from weak selling prices and margins, as feed prices remain high. “We believe there will be limited near term catalysts,” says UOB Kay Hian, which is keeping its “hold” call but with a lower target price of 23 cents.
