Following AEM’s record quarter, analysts from five brokerages have maintained their "buy" calls on AEM Holdings, but are less uniform on its target prices.
Most notably, Maybank has lowered its target price from $6.34 to $6.06, while Citi has raised its target price from $6.37 to $6.48.
DBS Group Research, UOB Kay Hian and CGS-CIMB Research have all held their target prices at $6.04, $5.60 and $6.85 respectively.
This comes after AEM released its 1QFY2022 business update ended March. In a May 6 report, Maybank’s Lai Gene Lih explains that he trimmed his TP estimates as he factors in a lower margin assumption of 15.7%, compared to 17% previously.
AEM reported a 1QFY2022 PATMI of $40.8 million, a 205.6% y-o-y rise. The figure beat Lai’s and the street expectations, at 33-34% of FY2022.
He notes that this was driven by strong momentum in the new generation equipment ramp up, and as such, still maintains his buy call on the stock, as he sees AEM as a structural beneficiary of system level test (SLT) adoption on rising chip complexity.
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For Citi’s Jame Osman, he sees scope for AEM's positive operational momentum to persist near term; easing supply chain issues could shorten lead times and accelerate order fulfillment further.
Osman also highlights that there is a “strong basis for positive guidance revision”, as AEM’s management has shared that its decision to raise its FY2022 revenue guidance is supported by stronger visible customer orders placed for the year.
1QFY2022 performance had been in-line with AEM's expectations internally, and management said it still sees a 'multi-year ramp-up' ahead in tandem with its key customer's product roadmap.
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Osman also noted that AEM has worked closely with its suppliers, while its investment in working capital and the inventory build-up in 1QFY2022 is reflective of efforts to ensure AEM will fulfill orders alongside customers' capacity expansion plans on time.
Separately, he notes that new (non-Intel) customer engagement is “on track”, with AEM being optimistic on new customer contribution of 5-10% of revenue from 2HFY2022.
The company also sees further market opportunities for system-level testing solutions in areas like automotive and the high performance computing domains.
“AEM appears well positioned to capture structural demand growth for back-end semiconductor testing solutions, both from its key customer Intel (>90% of rev.) and as it expands its customer base both organically and through strategic M&A.”
DBS’s Ling Lee Keng sees that AEM has the potential to re-rate higher on strong industry momentum.
She says AEM’s share price has a strong positive correlation with the US semiconductor equipment billings, which is one of the indicators of the industry’s strength.
“Despite 27 consecutive monthly (y-o-y) increases, data for December indicates a 46% y-o-y rise. We believe AEM is in a strategic position to benefit from its key customer and industry uptrend, and could re-rate higher.”
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Furthermore, Intel’s believes that the semiconductor industry could double its market size to US$1 trillion ($1.38 trillion) by 2030. Ling says it is ready to commit significant investments to ensure that it is at the forefront, and she believes that this will translate into higher revenues for AEM in FY2022-2023.
UOB Kay Hian’s Clement Ho also elaborates that Intel’s so called “IDM 2.0” strategy will benefit AEM as Intel’s new fabrication plants would drive demand for AEM on new back-end testing equipment, while older fabs would contribute to steady demand for AEM’s consumables and services as well as equipment upgrades.
Ho also sees a “rising probability” of another upward guidance in FY2022, as 1QFY2022 revenue now constitutes 36% of UOB’s full-year revenue estimate. He s we see a rising probability for a second upward revision throughout the year.
CGS-CIMB’s William Tng also broadly agrees with the above points, although he does list out some potential re-rating catalysts, like stronger-than expected orders from its major customer and earlier-than-expected success in securing orders from other potential customers.
On the other hand, he sees that some downside risks are delivery delays, aggressive competitive response and loss of sole supplier status or emergence of a new supplier.
As at 2.50pm, shares of AEM were trading at $4.77, with a FY2022 P/B ratio of 3.05 and dividend yield of 1.97%, according to CGS-CIMB.
