AEM Holdings: Riding the AI/HPC test wave

Figure 1: AEM Holdings has rallied strongly on a year-to-date basis

We initiate coverage following AEM's 1H26 results (released 12 August 2026), which showed the clearest evidence yet that the earnings recovery flagged since late 2025 is translating into a durable, structurally higher level of profitability. We set out AEM's business model and latest results, our investment case and its valuation against domestic semiconductor peers UMS Integration and Frencken.

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Company Description

Business model

AEM designs and manufactures semiconductor assembly and test equipment and also runs a contract manufacturing (CM) arm that provides supply-chain assurance for its own equipment ramp as well as external customers (including oil & gas). The Group organises itself into three reportable segments:

• Test Cell Solutions (TCS) — the core franchise, comprising slot-based, high-parallel test systems (AMPS, HPST), final-test handlers (Xion/Xact) and PiXL thermal control platforms used across burn-in, functional test (FT) and system-level test (SLT). TCS generated SGD 180.9m of revenue in 1H26, or 73.2% of Group revenue, up 52.5% YoY.
• Instrumentation (INS) — the smallest segment, supplying test instrumentation and configurable slots; it posted a modest segment loss of SGD 0.5m in 1H26 (versus a SGD 0.9m segment profit in 1H25) on revenue of SGD 3.1m.
• Contract Manufacturing (CM) — external CM revenue of SGD 63.2m in 1H26 (25.6% of Group revenue), down 5.7% YoY on softer oil & gas demand, but inter-segment CM revenue to support the TCS ramp rose 363.6% YoY, reinforcing CM's strategic role in de-risking AEM's own supply chain during the ramp.

Commercially, AEM operates a model involving an initial, capital-intensive sale of test and automation equipment, followed by recurring sales of device-specific configurables and collaterals that must be refreshed as customers introduce new device variants. This follow-on stream reached SGD 72.3m in 2Q26 (up 12.6% QoQ), with Configurables & Collaterals now representing 77.9% of TCS revenue in 2Q26, up from 72.9% in 1Q26 — a favourable shift from lumpy capital-equipment sales toward a more regular revenue base.

Latest earnings

For the six months ended 30 June 2026 (1H26), AEM reported:

• Revenue: SGD 247.2m, +29.9% YoY (+11.5% QoQ in 2Q26 vs 1Q26), driven by a 191.7% YoY increase in revenue from its fabless AI/HPC customer.
• Gross profit margin: 33.1%, up 7.7 ppts YoY, on favourable mix (higher TCS contribution) and improved CM pricing/volume.
• Profit before tax: SGD 38.2m versus SGD 3.9m in 1H25 (+868.8%), with PBT margin expanding to 15.5% from 2.1%.
• Net profit: SGD 30.8m (attributable to owners: SGD 31.0m), versus SGD 3.2m in 1H25; net profit margin of 12.5%, up 10.8 ppts YoY.
• EPS: diluted EPS of 9.68 cents, up from 0.98 cents in 1H25 — a near-tenfold increase.
• Cash flow and balance sheet: operating cash flow of SGD 12.5m (funding a SGD 30.5m build-up in working capital ahead of 2H growth); free cash flow of +SGD 0.4m after SGD 10.4m of capex and intangible additions; ending cash of SGD 82.7m and net cash of SGD 80.0m (versus SGD 6.4m in 1H25); NAV per share of 168.1 cents, up from 157.0 cents at end-2025; debt/equity of just 0.05x.
• Capital return: the Board declared an interim dividend of 2.4 cents per share (tax-exempt, one-tier), payable 8 September 2026 — the first interim dividend declared for a corresponding period, reflecting management's confidence in the earnings trajectory.
• Guidance: FY2026 revenue guidance was raised for the second time in 2026, to SGD 630m–680m from SGD 550m–600m (a range set at the Group's 1Q26 business update in May, higher than the prior range announced during its FY25 earnings in Feb of SGD 460m to SGD 510m), with full-year EPS guidance of 24.5–27.5 cents.

The results also confirmed AEM's fourth consecutive quarter of net profit growth and third consecutive quarter of revenue growth, with 2Q26 PBT margin (15.6%) and net margin (12.6%) both edging above 1Q26 levels. This points to continued operating leverage as volumes scale, rather than signs of margin stagnation.

Investment Thesis

1. A genuine, broadening AI/HPC-driven earnings inflection, not a one-customer spike

The scale of the 1H26 beat, PBT up nearly tenfold YoY, could invite scepticism that this is simply a high-beta swing tied to a single customer's order pattern. The data argues otherwise.

Growth has now been sustained for four consecutive quarters of profit growth and three of revenue growth. PBT margin has also risen slightly sequentially QoQ (15.3% in 1Q2026 to 15.6% in 2Q2026), and management has raised guidance twice within the same financial year as visibility improved. Together, this is a pattern more consistent with genuine operating leverage on a structurally larger revenue base (fixed costs being absorbed across higher volumes) than with a single lumpy order.

The underlying demand driver, data centre CPU/AI accelerator test intensity, is itself in a multi-year up-cycle. Per AMD’s projections, data centre CPU Total Addressable Market (TAM) is expected to grow by more than 50% CAGR from approximately USD 26b in 2025 to about USD 220b by 2030, with AEM positioned as an incumbent test partner to the top two CPU OEMs.

Figure 2: Data centre CPU Total Addressable Market is expected to experience a CAGR of more than 50% between 2025 and 2030

Source: AMD Internal Projections. Data as of 23 July 2026.

As package sizes grow, with industry-standard package outlines (as defined by JEDEC, the semiconductor industry's mechanical standards body) increasing by up to 216%, and test times roughly doubling from 7nm to 3nm nodes, semiconductor testing is becoming increasingly complex. Meanwhile, heterogeneous integration, including chiplets, co-packaged optics (CPO) and integrated voltage regulators (VRs), adds to thermal-management challenges. These trends could increase the value of AEM’s core differentiation in active and intelligent thermal control and highly parallel test infrastructure.

Figure 3: Increased testing complexity could further support AEM’s differentiated testing capabilities

Source: AEM Internal Projections. Data as of 30 June 2026.

2. A diversification pipeline is building, even as customer concentration remains elevated near term

Historically, the market's central concern with AEM has been customer concentration. That risk has not disappeared. If anything, growth in 1H26 relied heavily on a single AI/HPC fabless customer (+191.7% YoY), which became AEM's largest revenue contributor for the period. For context, that pace is well ahead of the 52.5% YoY growth in the TCS segment as a whole, implying the rest of the TCS customer base, including AEM's longstanding PC/Foundry customer, grew far more modestly over the same period.

What has changed is the pipeline behind that single customer. The PC/Foundry customer is separately adopting the AMPS platform for future test requirements, expanding AEM's existing fleet with Test 1.5 configurables and eventually Test 2.0 systems. The AMPS platform backlog of over SGD 400m is now split across at least two named customer relationships, the AI/HPC fabless customer and the PC/Foundry customer, rather than sitting with a single name.

Figure 4: AEM’s existing Test 1.5 configurables and Test 2.0 systems

Source: AEM Internal Projections. Data as of 30 June 2026.

The Memory segment, meanwhile, is working toward qualifying the Xact handler at a leading IDM, with the first unit shipping in 4Q26 ahead of a 2027 ramp.

Management has also explicitly laid out five strategic pillars for FY2026 and beyond, each with a distinct growth playbook:

1. PC/Foundry: expand the existing installed fleet with Test 1.5 configurables, and capture more technically demanding future test insertions with Test 2.0 systems.
2. PC/AI Fabless: sustain the current high-volume production ramp, while gradually transitioning more demanding test insertions onto AEM-developed solutions.
3. Memory: qualify the Xact handler at a leading IDM, ahead of a targeted production ramp in 2027.
4. OSATs: capture hyperscaler-driven opportunities by “following the chiplet,” upselling Test 1.5 and Test 2.0 solutions across AI/HPC-focused OSATs.
5. Contract Manufacturing: scale AEM's own semiconductor ramp and drive improved segment profitability through FY2026.

Not all five pillars carry equal weight today. PC/AI Fabless and PC/Foundry are the two with the clearest near-term revenue impact, since both already sit inside the AMPS backlog and current shipments, though PC/AI Fabless carries materially higher concentration risk given it rests on a single, undisclosed customer. Memory offers a concrete catalyst in the first unit shipment due in 4Q26. Contract Manufacturing functions more as a margin lever than a growth driver given softening external demand, and OSATs remains the most speculative pillar, with no disclosed customer or backlog behind it.

Taken together, we see this as the early stages of diversification rather than a risk that has already been resolved. If the pipeline continues to convert, we expect AEM to look less like a single-customer semiconductor test supplier and more like a multi-pillar platform business by FY27/28. Ultimately, we believe it should support further multiple resilience even as any one customer's order momentum normalises.

3. The model is building a recurring revenue base that should reduce earnings lumpiness through the cycle

A recurring criticism of capital-equipment names is earnings lumpiness tied to discrete system sales.

Figure 5: AEM’s Test Cell Solutions (TCS) revenue breakdown over the past cycle

Configurables & Collaterals revenue held up far better than equipment sales through AEM's last down-cycle: its share of TCS revenue actually rose, from 46.8% in 1H23 to 51.3% in 2H23 and 51.1% in 1H24, even as total TCS revenue nearly halved from SGD 172.5m to SGD 99.8m over the same period.

That pattern briefly reversed in 2H24, when a large customer pull-in order lifted equipment sales to SGD 91.2m, or 69.5% of that half's TCS revenue, and pushed the configurables share down to a cycle low of 17.0%, a reminder that any single half can still be dominated by lumpy system deliveries when a large order lands.

From that trough, the configurables share climbed steadily through the recovery: 48.7% in 1H25, 58.3% in 2H25, and 75.4% in 1H26, tracking the broader AI/HPC ramp.

As configurables and collaterals must be refreshed whenever a customer introduces a new device variant, this stream should scale with the installed base and with the accelerating pace of new AI/HPC chip variants. This is plausibly a more durable growth driver over FY2027–28 than the initial equipment sale itself, and one that management cited as increasingly important “to margin resilience and earnings.”

A larger recurring base also lowers the quality-adjusted risk of holding AEM through any near-term digestion in initial system orders.

Catalysts

Boost from EQDP, GEMS and passive ETF inflows

AEM Holdings is well-positioned to benefit from ongoing initiatives aimed at deepening Singapore’s equity market. Firstly, AEM Holdings could see heightened investor attention from the Monetary Authority of Singapore’s Equity Market Development Programme (EQDP), a SGD 6.5 billion initiative focused on boosting liquidity and institutional participation among small- and mid-cap counters. Secondly, the stock is also in the iEdge Singapore Next 50 Index. These could further elevate AEM Holdings’ visibility and liquidity in the market.

Valuation

AEM currently trades at approximately 37.7x forward P/E, implying a share price broadly consistent with the mid-point of management's own EPS guidance range (24.5 to 27.5 cents) at current levels. When compared with SGX-listed semiconductor-equipment/EMS peers like UMS and Frencken, UMS trades at a slightly lower level than AEM, around 34.9x, while Frencken sits meaningfully lower at 26.5x.

Figure 6: Both AEM and UMS are trading at a forward P/E of more than 30x

On a headline basis, both AEM and UMS are trading at multiples at a sizeable premium to Frencken. However, the earnings growth underpinning these multiples differs materially.

Based on our estimates, we expect AEM's EPS to grow 389.1% YoY in FY2026E, although this is flattered by the very low FY2025 base following the earnings trough. Growth is then expected to remain strong at 34.8% in FY2027E and 24.1% in FY2028E. This is a materially steeper trajectory than UMS, at 63.1% / 21.8% / 18.3%, and Frencken, at 14.8% / 9.5% / 13.0%, over the same period.

Figure 7: AEM is expected to exhibit the strongest earnings growth over FY26E-28E relative to UMS and Frencken

We believe AEM's business has changed enough to warrant trading above its own long-run average multiple. Today's growth looks structurally different from prior cycles: a broadening customer base, an AMPS order backlog now split across two named customers rather than one, and a configurables and collaterals revenue stream that held up better than equipment sales through AEM's last down cycle. Together, these point to more durable, better-diversified earnings power than the market priced through most of the last decade, when AEM's forward P/E averaged just 13.0x.

We assign a fair P/E of 25x, above its 10-year average of 13.0x by around +1.4 standard deviations. This premium reflects genuine improvements in earnings quality across three pillars of our investment thesis: a structural, broadening AI/HPC earnings inflection rather than a one-customer spike, now in its fourth consecutive quarter of profit growth; a diversification pipeline beyond AEM's original anchor customer, including an AMPS order backlog now split across two named relationships; and a recurring configurables and collaterals revenue stream that held up through AEM's last down cycle.

Two considerations keep us from pricing in the improvement more fully: (i) customer concentration has not yet eased in the current period, as our investment thesis sets out. (ii) the recurring revenue recovery has followed a sharp V-shaped path, not a steady one, after a large equipment pull-in order briefly reversed it in 2H24.

Importantly, the re-rating is not unique to AEM. AEM, UMS and Frencken are all trading above their respective historical forward P/E, with AEM now more than two standard deviations above its 10-year average of 13.0x (Figure 8).

We read this as evidence of a broad, sentiment-driven re-rating of SGX-listed semiconductor test and EMS names against the AI/HPC backdrop, rather than each company's specific fundamentals independently justifying the same degree of multiple expansion.

By applying a fair P/E multiple of 25X to our FY2028E EPS forecast of SGD 0.4373, we derive a target price of SGD 10.93 for AEM Holdings (SGX: AWX), which implies approximately 9.8% upside from the current price of SGD 9.96 (as of 23 September 2026).

Figure 8: AEM Holdings is currently trading at a forward P/E, 37.7x which is more than two standard deviations above its ten-year average of 13.0x

Table 1: Earnings table

AEM Holdings	FY25A	FY26E	FY27E	FY28E
P/E Ratio (X)	32.2	38.1	28.3	22.8
Earnings growth (%)	46.6%	389.1%	34.8%	24.1%
EPS (in SGD)	0.0535	0.2614	0.3523	0.4373
Upside Potential (%) (Fair P/E of 25X)	9.8%
Target Price	SGD 10.93
Current Price	SGD 9.96
Historical data is based on company data. Forecasted data is based on iFAST Estimates. FY25A P/E based on share price as at 31 Dec 2025 of SGD 1.72; FY26E-28E based on current price of SGD 9.96 as at 23 Sep 2026. Data as of 23 Sep 2026.

Figure 9: AEM share price and EPS chart

Note

iFAST Research rating system

iFAST Research employs a five-tier rating system: Buy (material upside potential, favourable risk-return); Accumulate (moderate upside, selectively add on weakness); Hold (limited upside, maintain existing positions); Trim (upside insufficient to justify a full position, reduce exposure on strength); and Sell (material downside risk, exit position).

Disclaimer

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.