AEM Holdings - CGS-CIMB Research 2019-12-09: Heading Into A Record FY20F

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

AEM Holdings - Heading Into A Record FY20F

  • We think AEM is headed for another earnings record in FY20F.
  • Strong demand from its key customer is the main driver.
  • Our Target Price is S$2.12, based on 3.58x FY20F BVPS.



Record FY19 in the bag

  • AEM HOLDINGS (SGX:AWX)’s 3Q19 core net profit of S$13.7m was 4% above our expectations of S$13.2m. (AEM reported its 3Q19 financials on 1 Nov 19, see AEM Holdings Announcements; AEM Holdings Latest News).
  • As expected, we saw a double-digit increase in staff costs as AEM added to its capabilities. Marketing expenses rose 117% y-o-y as AEM spent more to promote awareness of its product offerings.
  • Gross material margin increased both q-o-q and y-o-y to 37.8%.
  • We currently project a FY19 core net profit of S$44.8m, a 38% increase y-o-y.


Strong FY20F outlook

  • Going into FY20F, we think a strong outlook awaits, due to:
    1. strong demand for AEM’s existing products;
    2. a greater need for system-level testing, for which AEM already has an established product; and
    3. the launch of a hybrid Test Handler (TH) in 2020, which we think could command the same price range as existing THs.
  • AEM has also confirmed our channel check findings that it has leased new factory space to cope with the stronger demand.


Maintain ADD with unchanged Target Price of S$2.12

  • We have a Target Price of S$2.12 based on our ROE-g/COE-g-derived P/BV multiple of 3.58x FY20 BVPS.
  • Potential re-rating catalysts include further order wins from its main major customer, better-than-expected margins, and re-ordering of higher value consumables.
  • The key downside risks to our Add call are order pullbacks or a slowdown from its major customer.
  • Investors need to bear in mind that AEM’s earnings are still dependent on orders from Intel, and this drives our earnings estimates. Variations in Intel’s orders can swing our earnings expectations both ways.
  • See AEM Holdings Share Price; AEM Holdings Target Price; AEM Holdings Analyst Reports; AEM Holdings Dividend History.





William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09
SGX Stock Analyst Report ADD MAINTAIN ADD 2.120 SAME 2.120



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