No order cancellations for AEM Holdings despite Malaysia MCO: analyst

It may be able to catch up on production in Q2-Q4.

Electronics manufacturing firm AEM Holdings’ deliveries to key customer Intel will be delayed at worst, and any order cancellation is so far unlikely, despite the Malaysian government’s move to close most business premises, according to a CGS-CIMB report.

Assuming that the movement control order (MCO) in Malaysia is in effect for only two weeks, AEM may be able to catch up on production for Q2 to Q4 2020, and may still be able to hit revenues of $360-380m for the full fiscal year.

Recently, AEM announced that it has activated its business continuity plan (BCP) across its operations, including travel restrictions, compulsory temperature checking, working in shifts at different sites or from home, and sourcing materials elsewhere.

The company is also cautiously confident that its H1 2020 sales could reach a record high despite shifts in the delivery of its sales orders.

Further, Intel said that over 90% of its delivery of products from factories worldwide is still expected to come on-time, and its factories globally are still operating on a relatively normal basis.

The Malaysian government has imposed an MCO for 18-31 March to slow the spread of the outbreak, which required the closure of all business premises except for suppliers of essentials such as supermarkets and pharmacies. The report notes that most manufacturers have stopped production and are in negotiations with the authorities to manage the situation.

CGS-CIMB believes that AEM must have already shut down its Penang factory, whilst liaising with authorities for exemption or a workaround like staggered production or continued production with a smaller workforce.

At its Singapore plant, about 30-40 workers are estimated to have come from Malaysia, with some of them commuting daily between Singapore and Malaysia.