AEM Holdings - CGS-CIMB Research 2020-11-04: On Track For Record FY20F Net Profit


AEM Holdings - On Track For Record FY20F Net Profit

  • AEM's 9M20 net profit was in line with our expectations but better than consensus.
  • As AEM heads into the seasonally slower 4Q20F and 1Q21F, the next share price catalyst to watch out for will be the release of FY21F revenue guidance.
  • Reiterate ADD. We remain optimistic on FY21F given the still strong demand for its test handlers and possible increase in orders for consumables.

AEM's 9M20 net profit in line with our expectations

  • AEM (SGX:AWX) provided its 3Q20 business update yesterday. 9M20 revenue beat expectations at 89% of our and Bloomberg consensus full-year expectations. AEM's 9M20 net profit was in line at 80% of our full-year expectation but ahead of Bloomberg consensus at 88%. Cash at end-Sep 2020 was S$129.8m and net asset value per share was S$0.703.
  • AEM raised its FY20F revenue guidance again to S$500m-520m from S$480m-500m.

AEM's FY21F expectations

  • We think AEM’s FY21F outlook will be shaped by increased complexity in semiconductor chips, leading to increased testing. In the Intel business, we believe AEM remains the sole supplier and its new test handler product should see higher shipment volume next year.
  • Given that AEM’s test handlers will reach its fourth year mark in shipments to Intel, there could be a need to replace some of the consumables used in the machines, leading to an increase in orders of consumable for AEM.
  • AEM’s efforts in growing its presence in the system level test market continues and if successful, over the next one to two years, AEM’s contribution from this segment could increase. In May 2020, AEM announced a cooperation with United Test and Assembly (UTAC) to co-develop new test systems for image sensor chips. We think AEM could be on track to ship some equipment to UTAC by 2H21F.

Reiterate ADD on AEM

  • We raise our AEM's FY20F revenue forecast to S$520.2m factoring in the latest FY20F revenue guidance of S$500m-520m. Net profit forecasts are unchanged for FY20F as pretax margins were unchanged at 18.5% in 3Q20 (2Q20: 18.5%).
  • We assume that the impact of the S$20m revenue increase is offset by lower gross material margin and higher operating expenses as AEM absorbs more of the engineering cost in developing the test handlers in return for the right to the intellectual property developed in the process.
  • See AEM Share PriceAEM Target PriceAEM Analyst ReportsAEM Dividend HistoryAEM AnnouncementsAEM Latest News
  • Note that AEM did not disclose the full income statement. We reiterate our ADD call and Target Price of S$4.63, based on Gordon-Growth derived P/BV multiple of 6.09x (unchanged).
  • Re-rating catalysts are FY21F revenue guidance which we think AEM will issue in early-2021.
  • Downside risks are delivery delays due to lockdowns/movement restriction extensions and loss of competitiveness by its key customer.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-04
SGX Stock Analyst Report ADD MAINTAIN ADD 4.630 SAME 4.630