AEM HOLDINGS LTD (SGX:AWX)
AEM Holdings - Decent Runway Ahead
Investment case: beneficiary of rising SLT relevance
- We see AEM (SGX:AWX) as a beneficiary of system level test adoption (SLT), as we believe SLT is increasingly relevant due to advanced packaging technology and shrinking transistor sizes.
- We also believe the current pullback in AEM's share price as an opportunity to accumulate as we see 1H21 earnings weakness as transitory.
- We also see Intel’s IDM2.0 strategy as an underappreciated catalyst for AEM, contingent on Intel’s strong execution.
Catalysts: earnings recovery in 2H21 into 2022
- Catalysts are:
- resumption of y-o-y earnings growth in 4Q21 into 2022 – as AEM rolls out new generations of HDMT test handlers, which cater for high-performance computing;
- meaningful revenue contributions from 10 out of top 20 semiconductor customers globally – which infers that AEM’s solutions are gaining traction outside of Intel; and
- Intel’s front-end capacity expansion and IDM2.0 strategy - which should eventually benefit back-end suppliers such as AEM.
Valuations: revenue diversification could narrow gap
- Our target price for AEM is based on 14x FY22E P/E, as we believe investors should focus on the realignment of cyclical and structural factors, rather than transitory weakness in 1H21.
- On FY21E basis, AEM is trading at 13x P/E. For comparison, Singapore-listed tech stocks/ global test-handler peers/ global back-end equipment peers are trading at 15x/18x/25x FY21E P/E. As AEM continues to diversify revenues, we see potential for the valuation gap to narrow.
Key customer’s market share is key risk
- Thus far, we believe AEM’s Malaysia production is not materially affected by the 60% worker cap placed by the government during tightened MCO and lockdown. However, a significant worsening of the COVID-19 situation in Malaysia may be a key risk to this.
- Longer term, we believe Intel’s market share is a key risk to observe as this likely influences chip volumes that are tested using AEM’s equipment.
- See
- AEM (SGX:AWX) is one of the participating companies of Invest ASEAN 2021 by Maybank Kim Eng.
Gene Lih Lai CFA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-06-21
SGX Stock
Analyst Report
5.560
SAME
5.560
