AEM - UOB Kay Hian 2022-05-09: 1Q22 Record Quarter On Strong Momentum; Guidance Raised

AEM HOLDINGS LTD (SGX:AWX)

AEM - 1Q22 Record Quarter On Strong Momentum; Guidance Raised

AEM achieved a very strong 1Q22 with net profit of S$40.8m, up both y-o-y (+205.6%) and q-o-q (+4.3%), constituting 37% of our full-year target. This was achieved on sustained momentum in revenue (+226% y-o-y, +15.4% q-o-q), mainly driven by the uptake in new generation equipment and tools, and the consolidation of CEI which was acquired in 1H21.

AEM (SGX:AWX)’s 1Q22 net profit of S$40.8m (+205.6% y-o-y, +4.3% q-o-q) accounted for 37% of our full-year target. The strong showing came on the back of sustained momentum in revenue of S$261.9m (+212.1% y-o-y, +3.9% q-o-q), mainly driven by the uptake in new generation equipment and tools, and the consolidation of CEI Limited, which was acquired in 1H21.
All three segments were strong; consumables (+221% y-o-y) comprised the largest segment at 45%, followed by test & automation equipment (+371% y-o-y) at 34% and services (+123% y-o-y) at 21%.

Management now targets to achieve full-year revenue of S$700m-750m, from S$670m-720m previously. This implies a revenue growth rate of 24-33%, over the S$565.5m achieved in 2021.
AEM’s revised targets came following the affirmation provided by Intel (INTC US) on its 2022 revenue guidance during the recent 1Q21 results announced in late-April.

We believe Intel’s IDM 2.0 strategy would benefit AEM. Driving towards that strategy, Intel’s new fabrication plants (fabs) would drive demand for AEM on new back-end testing equipment, while older fabs would contribute to steady demand for AEM’s consumables and services as well as equipment upgrades.
With 1Q22 revenue now constituting 36% of our full-year revenue and 35-37% of AEM’s target, we see a rising probability for a second upward revision throughout the year.
No changes to our forecasts. Maintain BUY and target price of S$5.60 for AEM.
The target price is pegged to 2022 earnings of 15.6x, or +2 standard deviation to its historical five-year range, supported by a forward ROE of 25.6%. This compares to the Singapore peer average forward P/E of 10.1x and forward ROE of 20.6%. The valuation peg is supported by the positive outlook for AEM from 2022 onwards and the anticipated cyclical upturn of AEM’s business.
See
Catalysts:
- Higher-than-expected revenue growth rates.
- Better-than-expected cost management.
- Earlier-than-expected integration synergies with CEI.

Clement Ho UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-05-09

SGX Stock Analyst Report BUY MAINTAIN BUY 5.600 SAME 5.600