AEM Holdings - CGS-CIMB Research 2021-02-26: Strong Balance Sheet For M&A Growth


AEM Holdings - Strong Balance Sheet For M&A Growth

  • AEM FY20 revenue and net profit were in line with our/Bloomberg consensus.
  • Balance sheet remains in a net cash position and AEM announced another acquisition to strengthen its system level test capabilities.
  • Rolling over to FY21F, we reiterate our ADD call for AEM and unchanged target price of S$4.63.

AEM's FY20 results in line

  • AEM (SGX:AWX)'s FY20 revenue/net profit was in line with our and Bloomberg consensus expectations. FY20 revenue grew 60.6% y-o-y to S$519.0m (in line with its FY20 revenue guidance of between S$500m to S$520m) while net profit grew 85.0% y-o-y to S$97.6m (FY20 formed 98.3% of our forecast).
  • No major exceptional items in FY20 results.
  • Government grants (relating to the COVID-19 pandemic) amounted to S$3.3m.
  • A final dividend of S$0.05 was declared, bringing AEM's FY20 full-year dividend to S$0.09 per share (FY19 dividend was S$0.051 per share).
  • AEM's cash on balance sheet as at end Dec-2020 grew to S$134.8m from S$107.7m as at end Dec-2019. Bank borrowings at end Dec-2020 amounted to S$1.9m.

Intel still sees in-house test and assembly as a core differentiator

  • On 26 Jan 2021, Intel announced that it has invested a further US$475m in Intel Products Vietnam (IPV), its chip assembly and test facility in Saigon Hi-Tech Park (SHTP), Vietnam. As this additional investment was made between Jun 2019 and Dec 2020, part of the incremental increase in orders for AEM’s test handler (TH) is likely to have been reflected in its FY19-20 financial performance.
  • The key takeaway, in our view, is that Intel is not abandoning its test and assembly advantage even if it outsources some of its production which is positive for AEM.

Further M&A

  • Other than the ongoing offer for CEI Limited (SGX:AVV), AEM also acquired Lattice Innovation, Inc, a U.S. company that provides proprietary technology solutions in active thermal control for use in laser diode and thermal management for semiconductor chips.
  • Active thermal management is a vital part of all performance chip test steps ranging from burn in, sort test and system level testing. This acquisition further strengthens AEM’s competitiveness in system level testing.

Reiterate ADD

  • See AEM Share Price; AEM Target Price; AEM Analyst Reports; AEM Dividend History; AEM Announcements; AEM Latest News.
  • We make marginal cuts to our AEM's FY21F-FY22F earnings per share forecasts to fine-tune expenses assumptions and reflect the higher number of shares outstanding. Our target price for AEM remains unchanged at S$4.63 as we roll over to FY21F. Our Gordon-Growth derived P/BV multiple is 4.40x (previously 6.09x).
  • See comparison of AEM with peers UMS (SGX:558), Cohu Inc, Chroma ATE Inc in report attached below.
  • Re-rating catalysts are FY21F revenue guidance which AEM will issue after the completion of the CEI Limited acquisition and new customer wins.
  • 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 2021-02-26
SGX Stock Analyst Report ADD MAINTAIN ADD 4.630 SAME 4.630