Analysts from CGS-CIMB Research and DBS Group Research have maintained their “add” and "buy” calls on AEM after the company offered to privatise circuit board maker CEI at $1.15 a share on Jan 11.
See: AEM offers to buy CEI at $1.15 per share
The analysts have also kept their target prices unchanged at $4.63 and $5.16 respectively.
In a Jan 13 report, CGS-CIMB analyst William Tng notes that the offer price of $1.15 per share translates to a historical FY2012/19 profit to earnings ratio (P/E) of 13.9 times, as well as enterprise value to earnings before interest, taxes, depreciation, and amortization ratio of (EV/EBITDA) of 9.44 and 1HFY2020 price to book ratio (P/BV) of 2.58 for CEI.
CEI reported a net profit of $7.2 million for FY2019 and a net profit of $2.9 million for 1HFY2020. As at end-June 2020, CEI’s net cash position was $3.5 million.
On a pro-forma basis, the acquisition will be accretive for AEM’s earnings per share (EPS), says Tng.
The major shareholders of CEI (with a combined 23.68% stake) have already given their irrevocable undertaking to accept the offer from AEM subject to the satisfaction of the pre-condition mentioned earlier.
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AEM intends to delist CEI if its offer is successful, and Tng is of the opinion that this acquisition “could help AEM’s vertical integration and customer diversification efforts.”
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On the other hand, DBS analysts Chung Wei Le and Ling Lee Keng say they expect the acquisition to be “neutral at best”.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
“While the acquisition price is fair and there is EPS accretion of 11-13%, we think that the acquisition does not directly complement AEM’s business nor is it very helpful in advancing its technological capabilities,” they add.
On this, they are maintaining their financials as they await more clarity on the outcome of the offer.
The DBS analysts are more positive on the wider semiconductor industry, and noted that various industry associations are forecasting accelerated growth for semiconductors in 2021. US semiconductor equipment billings continue to rise, and recorded 40.4% y-o-y increase in September.
As at 2.39pm, shares of AEM were trading at $3.89, with a FY2020 P/BV of 4.9 and dividend yield of 2.5%, according to DBS’s estimates.
