AEM Holdings - CGS-CIMB Research 2021-03-24: Intel Capex Beneficiary

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AEM HOLDINGS LTD (SGX:AWX)

AEM Holdings - Intel Capex Beneficiary

• Intel has announced a ~US$20bn capex for two wafer fabs in the US, with plans to announce further capacity expansion within the year.
• We believe AEM (SGX:AWX), as the sole supplier of test handlers to Intel, will be a beneficiary of such capex.
• Reiterate ADD on AEM with an unchanged target price of S$4.63. We see FY21F revenue guidance as a catalyst for AEM's share price re-rating.

Intel announces IDM 2.0

• In his first business update as chief executive officer (CEO) of Intel (INTC US), Pat Gelsinger laid out the following:
  • Intel will continue to manufacture the majority of its products internally — the company’s 7 nano-metre (nm) development is progressing well, with the design of its first 7nm chip on track to be finalised by 2Q21F;
  • Intel will also increase its engagement with third-party foundries, which manufacture a range of Intel products, and
  • Intel will rebuild its foundry business (IDM 2.0 plan) with the establishment of a new standalone business unit, Intel Foundry Services (IFS), which reports directly to the CEO. IFS will offer Intel-based products as well as non-Intel based chip architecture. Intel will spend an estimated US$20bn to build two new wafer fabs in Arizona, US. Beyond these investments,
  • Intel also plans to announce the next phase of its capacity expansion in the US, Europe and other global locations within the year.
• See Intel's news release.

CEI offer update

• As at 19 Mar 2021, AEM has secured a 53.45% stake in CEI Limited (SGX:AVV). See CEI's announcements.
• Recall that AEM launched an offer for CEI at S$1.15 per share on 11 Jan 2021. See AEM's announcements. The CEI offer will close on 26 Apr 2021, and we anticipate that AEM could be providing its FY21F revenue guidance by May 2021.

Reiterate ADD on AEM

• Intel’s decision to increase its capex and get back into the foundry business, if successful, could translate into higher volume of chip production. This, in turn, could lead to higher test and assembly demand internally, leading to higher orders for AEM’s test handlers in time to come.
• We believe AEM remains the sole supplier of such test handlers for Intel’s current testing methodology.
• Our target price remains unchanged at S$4.63 based on a Gordon-Growth-derived P/BV multiple of 4.40x (unchanged).
• See AEM Share Price; AEM Target Price; AEM Analyst Reports; AEM Dividend History; AEM Announcements; AEM Latest News.
• Re-rating catalysts are FY21F revenue guidance, which AEM will issue after the completion of the CEI 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 2021-03-24

SGX Stock Analyst Report ADD MAINTAIN ADD 4.630 SAME 4.630