CGS-CIMB Research analysts William Tng and Izabella Tan have kept their “add” call on AEM Holdings AWX as they see a potential earnings recovery to happen for the company in the FY2024. However, they estimate that the company’s earnings per share (EPS) for the FY2023 will decline by 29.3% y-o-y.
In their March 17 report, the analysts have also kept their target price unchanged at $3.86 after shares in the company fell by 18.3% to $2.76 on March 1, just days after its FY2022 results were announced on Feb 24. Before the announcement, AEM’s shares were trading at around $3.38.
“Our TP is based on 9.5x FY2024 P/E, 0.5 standard deviations (s.d.) above its six-year average given its sole supplier status with its major customer,” write Tng and Tan.
For the FY2022 ended Dec 31, 2022, AEM’s earnings stood at $126.8 million, 38% lower y-o-y. While the company’s FY2022 stood at its highest annual figure at $870.5 million, exceeding its full-year revenue guidance, its target revenue guidance of $500 million for the FY2023 was deemed conservative.
On the share price decline, Tng and Tan believe that the market has priced in a weaker performance for the FY2023. At its current share price of $2.99, AEM’s shares are currently trading at 7.35x of Tng and Tan’s FY2024 earnings per share (EPS) forecast, or 7.0% below its six-year average of 7.9x.
In FY2023, Tng and Tan remain fairly positive on AEM’s prospects, believing that its management will “oversee its costs diligently” given the industry slowdown in the year.
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The analysts add that AEM’s legal and professional fees should decline “significantly” in the FY2023. The company had seen a $15.9 million increase in its legal and professional fees in the FY2022 that came from the arbitration involving its US entities in February 2022 and from the IT security breach in September 2022.
Despite the conservative revenue outlook in FY2023, Tng and Tan see a possible recovery happening for the company from the 2HFY2023 onwards. At its briefing, AEM’s management said that its revenue guidance of $500 million may be revised as visibility for its 2HFY2023 becomes clearer.
It added that revenue for the semiconductor industry could possibly rebound between the 2HFY2023 and early FY2024. Its growth trajectory may even reach the US$1 trillion ($1.34 trillion) mark by the 2030s driven by high performance computing, artificial intelligence, electrification of vehicles, and 5G communications, note the analysts.
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“Management thinks that these customers’ revenue could possibly double in FY2023 versus FY2022 and is optimistic that there could be secular growth opportunities from these customers in FY2024 and beyond,” write Tng and Tan.
To them, stronger-than-expected orders from AEM’s major customer and an earlier-than-expected success in securing orders from other potential customers are re-rating catalysts while delivery delays and the loss of the sole supplier status for its major customer, which would negatively affect AEM’s profitability, are downside risks.
As at 4.33pm, shares in AEM are trading 6 cents lower or 2.01% down at $2.93.
