AEM Holdings Ltd - CIMB Research 2017-08-08: Continues To Outperform

AEM Holdings Ltd - CIMB Research 2017-08-08: Continues To Outperform AEM HOLDINGS LTD AWX.SI

AEM Holdings Ltd - Continues To Outperform

  • 2Q17 net profit came in above expectations at 45% of our full-year forecast. 1H17 formed 67% of our full-year forecast.
  • AEM has upped its guidance again: FY17 revenue/PBT now expected to be at least S$200m/S$24m.
  • Reflecting the latest guidance, we raise our FY17F EPS by 7.6%.
  • Given its net cash balance sheet, adding some debt will help in managing working capital.
  • Maintain Add with a slightly higher TP of S$3.43, still based on 10x FY18F EPS.

2Q17 results above expectations 

  • 2Q17 results came in above expectations with net profit at 45% of our full-year forecast.
  • This was driven by a 264% yoy increase in revenue in the equipment systems business.
  • One-off items in the 2Q17 results were minor. The only major one-off item was an exchange loss of S$0.25m arising from translation of receivables. 
  • 1H17 net profit formed 67% of our full-year forecast.

Ups guidance 

  • In its 4Q16 results commentary, AEM had guided that it expected to achieve at least S$70m in sales and S$6.5m in PBT for 1H17. 
  • Based on 1H17 performance, AEM exceeded its revenue/PBT guidance by 49%/125%. The company has since updated its guidance and now expects to achieve revenue of at least S$200m and PBT of at least S$24.0m for FY17F.

Added some debt 

  • Looking at the 2Q17 cash flow, AEM generated S$9.7m in operating cash flow before working capital versus S$5.3m in 1Q17. However, net cash after working capital changes in 2Q17 was negative S$2.8m due to higher working capital requirements. 
  • AEM’s debt position was S$1.4m at end-June 17, up from S$64,000 at end-Mar 17. The company remained in a net cash position.

On track for a multi-year ramp-up 

  • In its FY15 and FY16 annual reports, AEM’s chairman said that its product was supporting a multi-year ramp at its key customer. 
  • 2Q17 results lend further credence to these statements. In its outlook commentary, AEM highlighted that industry forecaster Gartner Inc. expected the outlook for the semiconductor industry in 2017 and 2018 to remain positive.

Catalysts and risks 

  • The key share price catalyst is further acceleration of order momentum. Key risks are order pullback/cancellation by customers as well execution issues at AEM. 
  • The company’s recent order wins have been strong and it will need to manage its production to ensure that quality is not compromised.

Maintain Add 

  • Our FY17F EPS is raised by 7.6% to reflect AEM’s latest guidance. FY18/19F EPS changes are marginal at 1.3%/1.0% as we now assume slight profitability at its associates versus a loss assumption previously. 
  • Still based on an unchanged 10x P/E multiple (15% discount to its major customer’s P/E, 4% discount to its key peer Cohu’s P/E) to our FY18F, our target price is raised slightly by 1.2% to S$3.43.

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-08-08
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 3.43 Up 3.390