AEM Holdings - Maybank Kim Eng 2019-07-29: Addressable Market Maintained

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AEM HOLDINGS LTD (SGX:AWX)

AEM Holdings - Addressable Market Maintained

Bringing FY20E earnings forward; maintain BUY

• AEM HOLDINGS LTD (SGX:AWX) raised its FY19E revenue guidance to SGD265-280m from SGD225-250m. That said, it believes that the bulk of this could be frontloading of 2020E orders. As such, we raise FY19E EPS by 27% but reduce FY20E by 24%.
• Our ROE-g/COE-g Target Price is unchanged at SGD1.40, based on 3x blended FY19-20E P/BV.
• Catalysts could come from FY20E contributions from new hybrid equipment and Huawei as it ramps up production.
• Maintain BUY.

Increased orders for HDMT and STHI

• AEM’s improved guidance stems from increased orders for HDMT test handlers (TH) and STHI TH. STHI TH is a legacy system-level test (SLT) equipment. AEM believes its higher HDMT TH orders represent frontloading by its customer’s production ramp-up of 10nm chips.
• Increased STHI TH orders reflect its key customer’s –a USD230b market-cap chipmaker-increased needs in SLT, as it is operating HDMT at full capacity.

FY20E upside downside

• Amid a lack of analysis. Our base sold in FY19-20E: 49 units this year and 2989 units sold in FY19-20E. This may happen if:
  1. end-market demand for its customer’s 10nm chips turns out; and/ or
  2. equipment frontloaded to 2020E from 2021E.
• Our bear case with a play out if end-demand is soft due to severe economic weakness.

SLT at inflection point

• AEM has hired an positive, as we believe it now has a dedicated resource to build out its.
• We believe that through HDMT and AMPS, AEM will benefit from the industry’s adoption of SLT, given its superior throughput, accuracy and cost effectiveness over conventional testing methods.

Lai Gene Lih CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-07-29

SGX Stock Analyst Report BUY MAINTAIN BUY 1.400 SAME 1.400