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.

See also report: Technology Stocks - Maybank Kim Eng 2020-11-21: Riding A New Wave Of 5G, IoT, AI & EV; Upgrade to POSITIVE.

Gene Lih Lai CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-21
SGX Stock Analyst Report BUY MAINTAIN BUY 5.050 SAME 5.050