AEM Holdings - CGS-CIMB Research 2019-02-25: FY19 Revenue Guidance Issued


AEM Holdings - FY19 Revenue Guidance Issued

  • AEM’s FY18 results met its profit guidance. Adjusting for non-operational expenses, AEM’s FY18 net profit is in line with our expectations.
  • Order book for delivery in FY19 rose from S$110m on 31 Dec 18 to S$140m as at 22 Feb 19. AEM guides for S$180m-210m revenue in FY19.
  • We maintain our HOLD call with a higher Target Price of S$1.11 on rollover to FY20F.

Operating profit met expectations

  • AEM HOLDINGS LTD (SGX:AWX) met its guidance that FY18 revenue and operating profit would be at least S$255m/S$42m. Excluding non-operational items, AEM’s FY18 net profit is in line with our expectations.
  • Meanwhile, FY18 core net profit formed 101.3% of our forecast. Positive impact from the on-going cost reduction initiatives surfaced in the 4Q results with gross material margin at a record 42.1%.

FY19 outlook

  • AEM guided that revenue for FY19 could be in the range of S$180m-210m.
  • Orders received for delivery in FY19 have risen from S$110m at end Dec 18 to S$140m as at 22 Feb 19. AEM expects to receive more orders throughout 2019.
  • It expects to deliver the first commercial solution – Asynchronous Modular Parallel Smart (AMPS) platform to a memory client in 1H19. AEM will also deliver its first test solution for Huawei in FY19. At the same time, the group will continue to proactively manage its fixed costs in line with any volatility in the business.

Expecting another sizeable M&A

  • At end-Dec 18, AEM’s net cash position was S$58.6m. Capex guidance for FY19 is S$3m-5m.
  • We believe the strong cash balance enables AEM to seek a sizeable accretive M&A to position the company to participate in the 5G economy.

Another stab at peak earnings in FY20-21F

  • For AEM to have a chance of beating FY18’s net profit record, the company will need:
    1. its major customer to continue launching new successful products;
    2. strong demand for AEM’s new hybrid solutions product;
    3. successful growth of its 5G cable tester market and
    4. new customer wins by Afore.
  • We raise our FY19 EPS forecast to reflect new orders received by AEM. We also increase our FY20 EPS forecast as the momentum of customer orders and various new business initiatives by AEM unfold. Our FY20F forecasts are very much subject to order pullbacks or delays by AEM’s major customer.

Maintain HOLD on higher target price

  • Rolling over to FY20F on our unchanged 10x P/E multiple (6.5% discount to sector average) earnings, our Target Price is S$1.11.
  • Downside risks to our call are order cancellations/delays by its major customer while upside earnings risk comes from stronger-than-expected orders from its major customer.

William TNG CFA CGS-CIMB Research | 2019-02-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.11 UP 0.750