AEM Holdings - CGS-CIMB Research 2020-01-09: Add On Another Record Year


AEM Holdings - Add On Another Record Year

  • AEM HOLDINGS (SGX:AWX) announced FY20 revenue guidance of between S$330m and S$350m.
  • Orders received for delivery in FY20 of S$245m.
  • Raising FY20-21 revenue forecasts on strong demand. Maintain ADD with a higher target price based on P/BV. See AEM Holdings Target Price.

Record FY20 in the making

  • On 8 Jan 2020, AEM released its FY20 guidance. Orders received for delivery in FY20 were guided to be S$245m. See AEM Holdings Announcements.
  • As a comparison, on 31 Dec 2018, AEM released its guidance for orders received to be delivered in FY19 of S$110m. For FY20, AEM is guiding for revenue to be between S$330m and S$350m, which is a new record high for AEM.

New decade, new opportunities

  • Going into the new decade, connectivity driven by the proliferation of 5G technology will bring new product opportunities for chip makers. 5G, artificial intelligence and changing packaging formats will drive the need for more testing as well as system level testing. With the 30 Dec announcement of the acquisition of Mu-Test by AEM, we think the group has further strengthened its ability to help potential customers manage testing costs and time to market for their products. See AEM Holdings Announcements.
  • Users of the traditional automated testing approach of one test handler to one tester will have the option of exploring an asynchronous modular approach where one test handler is able to manage many low-cost, customised testers to perform various test parameters at the same time.

Not forgetting to invest in human capital

  • On the human capital front, AEM also made a few major hires in 2019. In particular, on 12 Nov 2019, AEM appointed industry veteran Mr. Chandran Nair as its Group President starting 1 Jan 2020. This new role supports AEM's growth globally with its customers and new business units.
  • As Group President, Mr. Nair will lead the global sales, marketing, and R&D teams. Mr Nair has immense experience in semiconductor testing and automation and started his career at National Instruments, playing a leadership role in the successful commercialisation of its PXI platform.

Higher Target Price driven by better revenue expectation

  • We expect AEM’s 4Q19 net profit to be in the region of S$8.8m (+100% y-o-y, -36% q-o-q). Given its revenue guidance for FY20, we lift our revenue forecasts for FY20 and FY21 and raise our target price (based on ROE-g/COE-g derived P/BV multiple of 3.88x). See AEM Holdings Share Price; AEM Holdings Target Price.
  • FY20-21F EPS raised due to higher revenue assumption.
  • Potential re-rating catalysts include further order wins from its major customer.
  • Key downside risks are order pullback or a slowdown at its major customer.
  • Taking a longer-term view, AEM has executed on its plan to diversify its customer base via M&A to grow its capabilities and offerings and human capital. Though not without competition and challenges, AEM’s game plan increases the probability of new customer wins in the future.
  • See AEM Holdings Analyst Reports ; AEM Holdings Latest News.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-09
SGX Stock Analyst Report ADD MAINTAIN ADD 2.38 UP 2.120