AEM Holdings

AEM Holdings ($0.064) : 2Q14 earnings disappointed. Net losses snowballed 13.5 times y/y to $4.8m as a result of 40.6% decline in sales revenue to $8.9m, 12.3ppt reduction in gross margins to 33.7% and high operating fixed cost. AEM has three business segments: equipment systems (ESS, 57.7% Rev), precision components (PCS, 24.4% Rev) and substrate and packaging (SPS, 17.9% Rev). Sales of ESS and SPS shrank 45.7% and 57.9% y/y to $5.1m and $1.6m respectively, PCS marginally offsets with 24.9% increase in sales to $2.2m. A lack of high volume manufacturing orders despite robust performance in global technology and electronics industry is worrisome. Looking ahead, 2H14 may produce slightly better results as $10.3m outstanding of to-date orders are progressively recognized in 2H14 and 1H15. Nonetheless, the management does not expect to turn profitable this year. In view of the above, the company is currently reviewing the viability of its business with restructuring on its books. Shareholders equity is eroding due to cumulative losses but the company is still in sound financial position to its creditors with net cash of $10.7m. NAVPS is 13.4 cents and AEM trades at 0.48x P/BV.