AEM Holdings has reported lower earnings for its 1HFY2021 but some analysts agree with the company’s view that the current 2HFY2021 will be better. Furthermore, with Temasek Holdings poised to be the largest shareholder via a placement, the provider of testing services for the semiconductor industry is well poised to for further growth.
Maybank Kim Eng’s Lai Gene Lih, for one, has kept his “buy” call but with a higher target price of AEM from $5.56 to $5.77. DBS analyst Chung Wei Le, in his Aug 10 note, has raised his target price from $4.73 to $4.99, which is pegged to 13.7 times FY22F earnings, which is the same multiple as AEM’s previous peak valuation in 2018.
"AEM is in a strategic position to benefit from its key customer and industry uptrend. The stock is currently trading at an 11.5x FY22F PE, which is at a 30.7% discount to its peer average of 16.5x," writes Chung, citing the strong industry momentum.
CGS-CIMB’s William Tng, meanwhile, has slightly trimmed his target price from $4.63 to $4.61 to take into account a larger share base, while keeping his “add” call.
For MBKE’s Lai, the 1HFY2021 earnings y-o-y drop of 46.6% to $78 million was in line with his estimates, given how AEM had already flagged the weakness and also because of a high base effect coming off 1HFY2020 when AEM’s new products brought in additional revenue. However, the extent of the decline was steeper than consensus expectations.
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Separately, Temasek is investing some $103 million by taking up 26.8 million new shares at $3.8477 each, equivalent to 9.5% of AEM’s existing share base. Upon completion, the Singapore state investment agency will become AEM’s single largest shareholder. Russell Tham, a semicon industry veteran, will be representing Temasek on AEM’s board. “We believe the cash infusion would speed up AEM’s expansion into adjacencies to provide end-to-end solutions to customers,” writes Lai in his Aug 9 note. "We value the long-term strategic relationship and endorsement that brings with a significant new shareholder," notes Chung.
Even with the earnings drop, AEM is reaffirming its guidance that revenue this year will be between $460 million and $520 million, and that the growth momentum will be carried into FY2022, as AEM phases in new generation tools into the high volume manufacturing sites globally run by its key customer, Intel Corp.
AEM is also actively diversifying its revenue base, and has reiterated that it expects to gain meaningful revenues from the deep engagement it has with 10 of the top 20 semiconductor companies globally in 2022, notes Lai.
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According to Chung and Ling, given the “limited visibility” for now, but with the underlying strong industry momentum, they do not rule out a potential series of further earnings upgrades as was seen in FY2020.
For CGS-CIMB’s Tng, possible re-rating catalysts he sees for AEM include possible upward revisions to revenue guidance in the coming months. On the other hand, downside risks are delivery delays due to lockdowns and, or, movement restriction extensions, loss of competitiveness by its key customer, and aggressive competitive response from its competitors.
AEM shares closed Aug 6 at $4.17, up1.96% for the day and up 17.13% year to date.
