AEM Holdings - Maybank Kim Eng 2019-06-18: System Level Test – At An Inflection Point

AEM HOLDINGS LTD (SGX:AWX) | SGinvestors.io AEM HOLDINGS LTD (SGX:AWX)

AEM Holdings - System Level Test – At An Inflection Point


At the right place, at the right time

  • 5G is expected to usher greater levels of device interconnectivity. Chips are also increasingly complex and mission-critical. To test chips efficiently and effectively, chipmakers are increasingly looking to system level test (SLT) to complement conventional methods. AEM HOLDINGS LTD (SGX:AWX) appears well positioned given its early mover advantage and strong know-how.
  • AEM may even be an attractive M&A target, given attractive valuation of 6x FY19E EV/EBITDA.
  • ROE-g/COE-g Target Price of SGD1.40, based on 3.1x FY19E P/B is unchanged. BUY.



System level test reaching inflection point

  • System Level Test (SLT) can overcome the limitations of conventional test methods, which are
    1. risk of test escapes with rising levels of untested transistors at each new node;
    2. inadequate testing of concurrent scenarios; and
    3. increasing chip complexities demanding new test paradigms.
  • We believe currently nascent adoption could accelerate as chipmakers increasingly see SLT as a necessity to either reduce cost of test (CoT) or avoid large liabilities as a result of product failure, such as product recalls.


Favourably positioned

  • For SLT to yield improved CoT, the implementation should be massively parallel, asynchronous, and highly customisable to the customer’s requirements, according to one of AEM’s competitors. These features are the strengths of AEM’s HDMT and AMPS test handlers.
  • We believe the shift in industry dynamics could boost customer stickiness with the core customer, and open doors with potential ones. However, we note rising competitive pressures from
    1. new products from competitors and
    2. consolidation by adjacent players.


The M&A angle

  • Aside from domain expertise and attractive valuation, potential acquirers may be keen to explore merger synergies. Depending on Cohu bought Xcerra at 7-8x EV/EBITDA, while the median of comparable transactions in recent years is 10x.















Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-18
SGX Stock Analyst Report BUY MAINTAIN BUY 1.400 SAME 1.400



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