DBS Group Research has kept its “hold” call on AEM Holdings AWX at a target price of $1.97 after AEM announced that it has proposed to dispose of all of its shares in South Korean tech company, ATECO.
On June 25, AEM Holdings subsidiary, AEM Singapore (ASG), entered into a share purchase agreement to dispose of all of its 470,504 common shares and 994,220 preferred shares in ATECO for around $6.8 million.
ATECO specialises in the design and development of memory test handler solutions.
The agreement was entered with institutional investors LB Innovation Growth Fund II, JP-IBKS Innovation MPE Fund No 1, JP-IBKS Innovation MPE Fund No 2 and New Deal Extension New Technology Fund No. 1, as well as Foong Wai Fee, one of ATECO’s registered directors.
The initial investment in ATECO enabled certain licensing of intellectual property to AEM, but due to the lack of profitability among other reasons, it was determined that continued equity ownership in ATECO no longer offered any strategic benefit.
Following the announcement, the DBS team expects to see “negative sentiment” on AEM’s shares as the consideration stands at a 23% discount to the sale shares’ book value of $8.8 million.
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The proposed transaction is expected to result in a loss of disposal of around $2.0 million and would bring AEM’s FY2023 pro-forma loss per share to $1.05 after closing the transaction versus a loss per share of 40 cents pre-transaction, the team notes in its June 25 update.
As such, the team sees downsides to its earnings estimates with the one-off loss on disposal representing 9% of its FY2024 earnings forecast.
“A process to find a strategic buyer for ASG’s stake was started late last year,” notes the PhillipCapital team in its June 26 update.
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“Although the consideration represented a 23% discount to the carrying amount of the AEM's investment in ATECO as at Dec 31, 2023, it was the best offer the company has received,” it adds.
As at 11.30 am, shares in AEM Holdings are trading flat at $1.85.
