SINGAPORE (July 1): DBS Group Research is upgrading its call on chip maker AEM Holdings to “buy” from “hold” with a target price of $3.53 from $2.87 previously.
In a Monday report, DBS says, “Since our ‘hold’ recommendation on May 8, AEM’s share price has been consolidating between $3.00-3.20. With positive developments in the industry, improving outlook as well as higher FY20 sales guidance, we believe AEM’s share price could break out to hit a new record.”
Things are also looking up for the semiconductor industry.
SEMI, the global industry association representing the electronics manufacturing supply chain, has increased its forecast for global fab spending in 2021 by 10%, US semiconductor equipment billings increased by 13.6% y-o-y in May, and inventory builds in chip makers. This is the eighth consecutive y-o-y increase since October last year.
“We believe that the expected increase in spending on global fab equipment in 2021 is a positive development for AEM as it reinforces the current uptrend in the industry,” says DBS.
Furthermore, the Covid-19 pandemic has changed the way people work. Telecommuting and working-from-home are slowly becoming the new norm as companies reassess more flexible working arrangements.
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Hence, DBS believes that there will be some conversion post-Covid 19 which will drive the longer-term demand for data centres and server processors, the segment which Intel is focusing on.
In comparison, top US chipmakers such as Intel, Nvidia, and Broadcom, have reported an increase in revenue in 1Q20 despite the COVID-19 pandemic. While the outlook for the global economy has weakened, these firms continue to build inventory to cater to the expected increase in demand for semiconductor chips.
As at 11.10am, shares in AEM are trading at $3.17 or 4.0 times FY20 book with a dividend yield of 2.9%.
