SINGAPORE (Oct 17): CIMB is maintaining its “add” on AEM Holdings with a target price of $4.55 after the company once again raises its profit guidance.
See: AEM issues positive update to 9M and FY profit guidance
For FY17, AEM is guiding for pretax profit of at least $32 million, up 33.3% from its previous $24.0 million guidance.
It has also guided for 9M17 pretax profit of $25 million–$27 million, up 42.9%–54.3% compared to its previous guidance of $17.5 million.
This is based on an unchanged 10 times P/E multiple compared to an 18% discount to major customer’s P/E and 34% discount to key peer Cohu’s P/E.
AEM said the higher guidance is due to higher sales, better margins and better operational efficiency YTD.
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CIMB had previously highlighted that AEM’s pretax profit guidance in August was likely conservative.
AEM has appointed Loke Wai San as executive chairman with effect from Oct 1. Loke has been AEM’s non-executive chairman since 2011.
“We view this appointment positively as we think it would strengthen the major shareholder’s interest (Novo Tellus via Orion Phoenix) and be favourable for the minority shareholders. The appointment reaffirms Mr Loke’s commitment to AEM, as it indicates that he will be focusing on expanding the company,” says analyst William Tng in a Monday report.
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On Sept 30, AEM also announced the acquisition of InspiRain Technologies to diversify its business and build on its test handler capabilities.
InspiRain is a provider of network infrastructure test and measurement solutions with innovative test products that address large potential global markets, says Loke.
AEM plans to fund the purchase mainly via the reissuance of treasury shares and a smaller cash dividend payout.
Meanwhile, AEM’s 21.2% owned associate Novoflex provides further diversification.
Novoflex owns 100% of Smartflex Technology (SFT) and Smartflex Innovation (SFI).
SFT is an outsourced assembly and test company for smart card modules used in banking, while SFI has developed proprietary manufacturing equipment, processes and intellectual property for producing low-cost SIM card modules for telecommunications and smart card modules for banking.
Given the positive pretax profit update, CIMB is raising its FY17-19 EPS forecasts by 19.3-32.6%.
Shares in AEM are up 5.6% or 16 cents at $3.03.
