AEM Holdings Ltd - CIMB Research 2018-01-23: Don’t Stop Me Now!

AEM Holdings Ltd - CIMB Research 2018-01-23: Don’t Stop Me Now! AEM HOLDINGS LTD AWX.SI

AEM Holdings Ltd - Don’t Stop Me Now!

  • AEM has upped its profit guidance for FY17 to a pre-tax profit range of S$35m to S$37m versus its 2 Nov 2017 guidance of at least S$32m.
  • Although the first month of 2018 has barely passed, AEM has issued its FY18 guidance of revenue of at least S$255m and PBT of at least S$42m.
  • The company also guided that it was considering issuing bonus shares to reward shareholders.
  • We believe the new guidance reflects continued momentum with its major customer and margin improvement. We raise our forecasts to reflect these factors.
  • Our target price rises to S$5.97 based on an unchanged 10x (19.4% discount to sector average P/E of 12.4x for CY19) CY19F earnings.



FY17 profit guidance lifted 

  • AEM has raised its FY17 pre-tax profit guidance to a range of between S$35m and S$37m. Its previous guidance on 2 Nov 2017 was a pre-tax profit of at least S$32m. 
  • We believe the positive update to AEM’s FY17 guidance is the result of higher sales, better product mix and operational efficiency. 
  • AEM’s gross material margin has been on the uptrend (3Q17: 38.3%, 2Q17: 27.2%).


Early issuance of FY18 guidance 

  • Although the first month of 2018 has barely passed, AEM has issued its FY18 earnings guidance. The company guides that based on sales orders received, revenue for FY18 could hit at least S$255m while pre-tax profit could reach S$42m. This is driven by strong order momentum from its major customer and illustrated by its order win announcements.
  • On 30 Nov 2017, AEM announced S$76m worth of orders for delivery in 1H18. On 21 Dec, this number was raised to S$100m.


Considering bonus issue 

  • AEM expects to release its 4Q17/FY17 results on 23 Feb 2018. Given that the company has received much attention from shareholders and commensurate with its improving financial performance, AEM’s board is also considering issuing bonus shares to reward shareholders. 
  • We view this positively as liquidity could improve and this could pave the way for institutional funds to become shareholders.


Strong fundamentals driving our higher earnings forecasts 

  • We raised our EPS forecasts by 16.2% for FY17 and 33.6%/31.3% for FY18/19. Our higher forecasts result from higher revenue as we increase our unit sold assumptions.
  • We have also raised our gross material margin assumptions as cost efficiencies kick in. Our tax rate assumption over FY17-19 remains at 17%.


Higher S$5.97 target price 

  • Given the higher earnings forecasts, our target price is raised to S$5.97 (previously S$4.55). Our valuation basis remains at an unchanged 10x FY19 earnings. 
  • Further rerating catalysts include stronger-than-expected order momentum from its major customer and M&As by AEM. 
  • Key risks are order cancellation/pull-back by customers as well as the total addressable market peaking in FY19 under our current forecast scenario.



William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-01-23
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 5.97 Up 4.550








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