Analysts are generally positive on AEM Holdings, in light of the group’s recent revision of its revenue guidance between $820 million and $850 million, from $750 million to $800 million previously. According to AEM, the higher revenue guidance was due to an increased demand from a mix of new and existing customers for its semiconductor business.
See: AEM lifts FY2022 revenue guidance to between $820 mil and $850 mil
CGS-CIMB Research analysts William Tng and Izabella Tan have kept an “add” rating on AEM Holdings with an unchanged target price of $3.76.
Just a few days before their latest report on Oct 18, Tng and Tan slashed their target price on the counter to $3.76 from $6.54 previously on Oct 14. The lowered target price was due to the fear of order deferments.
Considering AEM’s new revenue guidance, the analysts have raised their FY2022 ending December revenue forecast upwards by 6.3%, leading to an 8.2% increase in their earnings per share (EPS) forecast. “Against our revised FY2022 EPS forecast, we now expect AEM to post a 6.5% y-o-y decline in EPS in FY2023,” they add.
Tng and Tan believe that the demand for AEM’s test handlers is likely to be impacted in FY2023 ending as its major customer Intel reassess its capex in the face of weaker end market demand.
See also: Test debug host entity
The analysts observe that AEM remains confident of the long-term demand for its test handlers as testing complexity grows. Management believes AEM will be able to participate in the growing trend towards system level testing with its own complete solutions.
Depending on the operating environment in FY2023, Tng and Tan note that AEM will manage its cost structure to deal with the revenue volatility.
The analysts also note that in FY2018 when AEM guided for “dim visibility” into FY2019, management adopted the strategy of proactively managing its fixed costs in line with the volatility in its business.
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Overall, Tng and Tan believe that AEM’s strength in system level tests, on the fronts of handlers and complete testing solutions, remain intact. “Hence its long-term prospects remain strong,” they add, as they value AEM at 9.7x, 0.5 standard deviation (s.d.) above its six-year average, on their FY2023 EPS forecast.
Maybank Securities downgrade call to ‘hold’
Meanwhile, Maybank Securities analyst Jarick Seet has downgraded its call on the stock to a “hold” rating from “buy” previously with a lowered target price of $2.98. The lowered target price is 50.8% lower than the brokerage’s previous target price of $6.06.
“We reduce our pegged P/E multiple from 16x to 7.5x in this downcycle to factor in macro risks like rising interest rates, a potential sudden slowdown and continued de-rating of the tech space,” writes Seet.
That being said, Seet is optimistic that key customers of AEM will continue to ramp up new generation equipment. Management has also indicated that early signs display that the US ban on high-tech chip sales to China will have little impact on its key customers. “As a result, earnings should remain positive for the time-being,” the analyst notes.
In addition, AEM has secured three new customers in high-performance computing and artificial intelligence (AI) application processors for mobility and the memory integrated device space. “We believe that increased demand from its key and new customers should boost AEM’s earnings significantly in the next few years,” Seet says.
On the whole, in spite of a largely positive outlook for AEM, Seet still thinks that its valuation will likely trade at a discount to global players and its share price performance will likely be muted and sluggish until its high profile global peers rebound to higher valuations. This is in lieu of how major chipmakers in the US are currently trading at significantly lower valuations of between 6x to 11x P/E.
The analyst notes that he prefers Venture Corp in Singapore’s tech space for its “diversification and resilience.”
As at 11.46am, shares in AEM are trading at 5 cents up or 1.61% higher at $3.15 at a FY2022 P/B ratio of 1.93x and dividend yield of 3.33% according to CGS-CIMB’s estimates.
