AEM Holdings - Maybank Kim Eng 2020-11-21: 5G Beneficiary


AEM Holdings - 5G Beneficiary

Key beneficiary of rising system level test (SLT) trend; BUY

  • System level test is gaining traction, due to rising complexity of chips, and the need to test mission-critical devices reliably. We continue to see AEM (SGX:AWX) as a key beneficiary of this trend, on the back of its strong know-how and track record in this area.
  • We also see FY21E as a growth year for AEM, driven by new products across several customers.
  • Maintain BUY on AEM and target price of S$5.05 (14x FY21E P/E).

Increasingly complex testing needs boon for system level test (SLT)

  • The rollout of 5G enables increased complexity in mission-critical applications – in turn creating unprecedented challenges in chip testing. As semiconductor nodes decrease and heterogeneous packaging becomes mainstream, the need for system level test (SLT) is likely to increase.
  • We see AEM as a beneficiary of this given their first-mover advantage and strong track record serving Intel. VLSI Research projects SLT to grow at a 4.4x faster pace than wafer sort and functional test in 2020-24, driven by the need to increase test coverage reliably in chips where design-for-test techniques leave hundreds of millions of transistors untested.

New products are AEM's FY21E drivers

  • We project AEM's FY21E to be a growth year, driven by continued momentum for new products introduced in 2020 – including for Intel (hybrid project), Huawei (TMS) and the memory customer (AMPS). This is offset by our own assumption of reduced HDMT equipment shipments due to potential high-base effects in 2020.
  • AEM will announce FY21 guidance in Jan-21.

AEM - Valuation and risks

  • As normalising seasonality patterns may create difficult y-o-y comparisons in 4Q20 and 1Q21, we see risks of near-term share price volatility. We believe these are opportunities to BUY on dips, given AEM’s favourable long-term growth prospects.
  • As SLT gains traction, we also see AEM as an M&A candidate.
  • See AEM Share Price; AEM Target Price; AEM Analyst Reports; AEM Dividend History; AEM Announcements; AEM Latest News.
  • AEM's share price is trading at 5.8x FY21E EV/EBITDA, which compares favourably to the 7.8x that peer Cohu bought Xcerra for in 2018.
  • Key risk to our view is if Intel loses more market share than expected, which may result in lower demand for AEM’s equipment.

Gene Lih Lai CFA Maybank Kim Eng Research | 2020-11-21
SGX Stock Analyst Report BUY MAINTAIN BUY 5.050 SAME 5.050