Analysts have lowered target prices for AEM Holdings after the chip tester reported lower earnings for 1HFY2023. In addition, it is guiding for lower revenue for the whole of FY2023, suggesting that industry recovery will not take place so soon.
Furthermore, a full accounting of an arbitration settlement, of some US$20 million, will only be booked in the current 3Q, which will likely drag AEM into the red for this quarter.
For the six months ended June, revenue was below expectations, down 49.1% y-o-y to $275.2 million because of lower volume handled, and that new generation equipment volume did not materialise as customers' release schedules have been delayed.
Coupled with lower margins, AEM's earnings for 1HFY2023 was down 76.3% y-o-y to $19.7 million. AEM will not be paying an interim dividend, versus 6.7 cents paid for 1HFY2022.
For the whole of FY2023, AEM expects revenue to range between $460 million and $490 million, down from an estimate of $500 million previously.
From the perspective of Citi's analyst Jame Osman, the lowered sales target is a "key disappointment", given how there had been recent "supportive" data points from Intel Corp, AEM's key customer. For now, Osman has maintained his "buy" call and $4.87 target price.
In her Aug 14 note, DBS Group Research's Ling Lee Keng is keeping her "hold" call on the stock, but with a reduced target price of $3.11, which remains pegged to 10x FY2024 earnings. Her previous target price was $3.35.
Ling believes that with inventory destocking still underway for the rest of the year, meaningful recovery will be deferred to 2024.
See also: Test debug host entity
With the gloomier prospects, Ling has reduced her FY2023 revenue forecast by 20% as the semiconductor recovery is deferred to 2024.
With lower top-line, weaker margins, and substantial expenses from the arbitration settlement, her FY2023 earnings estimates has been reduced by 75%.
Nonetheless, there are some "bright spots" involving new customers other than AEM's key income source: Intel Corp. It has received some new initial orders from an additional leading application processor customer, and engagements with a previously announced memory customer is seeing good progress.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
CGS-CIMB Research's William Tng has kept his "reduce" call with a lowered target price of $2.92 from $3.30 previously as he sees a possible headline loss going into the 3QFY2023.
AEM's 1HFY2023 core net profit stood below Tng's expectations, forming 41.7% of his core net profit forecast of $47.2 million for the full year.
That said, he has raised his FY2023 revenue estimates by $4.8 million to $460.0 million to match the company's revised guidance. However, he has also slashed his FY2023 core earnings per share (EPS) estimates by 31.5% as he adjusts his 2HFY2023 forecast to account for AEM's performance in the first half of the year. He has also downgraded his EPS forecasts for the FY2024 to FY2025 by 6.4% to 11.5% as he lowers his gross profit margin forecast by 2.0 to 2.8 percentage points.
AEM shares dropped 8.48% to change hands at $3.13 as at end of morning trading.
