SINGAPORE (Jan 15): There is no slowing down for precision engineering services firm AEM Holdings, as a solid FY19 seems to have paved the way for an even better year to come.
On Jan 8, the group announced that it had bagged some $245 million worth of sales orders for delivery for FY20.
“The group expects FY20 revenue to be between $330 million to $350 million,” the group said in a regulatory filing. The projected revenue is indeed a significant increase from previous figures of $262 million in FY18 and $222 million in FY17.
The revenue guidance also appeared to have been a surprise to market watchers. AEM is set to surpass Maybank Kim Eng Research’s forecast by 4-11%, and KGI Securities’ one by 12-19%.
Accordingly, Maybank has raised its FY20 earnings forecast for AEM by 11-16%, while KGI has raised its forecast by 22%.
According to Maybank analyst Lai Gene Lih, a key driver to the group’s improved financial metrics is the sustained momentum from its key customer - semiconductor manufacturer Intel.
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In its 3Q19 presentation, AEM had explained how Intel’s new business strategy and push into AI solutions will continue to drive demand for products such as high density test handlers (HDMT).
“Depending on Intel’s success rate in new markets, this could translate to expanded HDMT wallet size over time. As each new chip tested requires a customised kit, we believe AEM will continually be plugged into Intel’s R&D roadmap,” says Lai in a Wednesday report.
In addition, Lai notes that AEM will be commercialising a new hybrid test handler for Intel to test its chips in 2020.
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On the flipside, KGI analyst Kenny Tan prefers to err on the side of caution while remaining cautiously optimistic. “ Intel’s shift came at an awkward timing as they have been receiving substantial flak for their recent underperformance,” says Tan.
“We acknowledge that AEM stands to benefit from this business pivot, which will support steady sales of test handlers and its peripherals,” adds Tan.
Apart from its key customer, AEM’s new acquisition of French semiconductor test solutions provider Mu-TEST appears to have ticked all the right boxes for the group, allowing it to extend its solutions offerings.
See: AEM to acquire French automated test equipment firm for $11 mil
“This allows AEM to enter the world of niche mixed signal semiconductors with a different set of market players, whom have different testing needs than large semiconductor players,” says KGI’s Tan.
Lai shares the same view, adding that the acquisition also enhances the group’s value proposition as it is now able to provide full SLT solutions consisting of both testers and test handlers.
On the back of a sanguine outlook, both brokerages are maintaining their “buy” calls on AEM, but have increased target prices for the group.
Maybank has raised its target price to $2.58 from the previous $2.12, representing a 31% upside for the stock. KGI has raised its target price to $2.57 from the previous $1.80, indicating an upside of 19%.
Shares in AEM Holdings closed flat at $2.16 on Wednesday.
