Maybank Securities analyst Jarick Seet has maintained his “hold” call on AEM and raised his target price from $2.98 to $3.43, even as he warns that the company may face “short term headwinds” ahead.
Seet notes that AEM experienced a “positive” 3QFY2022 ended Sept 30, with revenue and net profit after tax (NPAT) rising 41% and 38.3% y-o-y to $206.1 million and $32.2 million.
This surpassed his own estimates, as well as those of the consensus.
As such, he raises his FY2022 estimates by 5.5%, but due to near-term headwinds, he lowers his FY2023 estimate by 21.5%, explaining that AEM experienced a “buoyant 1HFY2022” due to an exceptional surge in orders by its key customer, which he does not expect to recur in FY2023.
Elaborating on this point, Seet is of the view that AEM’s 1HFY2023 “won’t be as great” 1HFY2022 due to this exceptional surge in orders. 1HFY2022 results made up about 64% of his full year NPAT estimates, he highlights.
He expects 1HFY2023 to show a y-o-y decline, but this should be partly mitigated by orders from its new customers, as seen in the surge in AEM’s inventory of $117.6 million as of end-September to end-December 2021.
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“We also expect orders to be more evenly distributed throughout the four quarters in FY2023,” Seet writes.
Separately, he points out that AEM has secured three new customers over the last few quarters, and he believes that the key to any earnings surprise will be highly dependent on the volume ramp-up progress of these customers.
“We think that the positive surprise, if any, will come in 2HFY2023 as the volume ramp-up will likely to occur then,” says Seet.
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Despite the bright outlook, Seet believes that investors should adopt a “wait-and-see” approach, due to the current macro environment, a looming recession in Europe and the US, and the lack of positive catalysts going forward.
He concludes, “We are confident in AEM’s mid-to long-term prospects but short-term headwinds may present lower price entry levels in the near term for investors.”
As of 11.16 am, shares of AEM were trading at $3.45, with a FY2023 P/B of 2.1 and dividend yield of 3.1%.
