Analysts from CGS-CIMB Research, DBS Group Research, KGI Research and Maybank Kim Eng are unperturbed on the lower results posted by AEM Holdings.

AEM, on May 3, reported a 63.1% decline y-o-y in net profit of $13.3 million for the 1QFY2021 ended March. The low net profit comes on the back of lower revenue of $80.2 million during the quarter, after the record revenue of $146.8 million for the 1QFY2020.


See: AEM reports 63.1% lower net profit in 1Q21 of $13.3 mil following 'exceptional' 2020


 

CGS-CIMB, DBS and Maybank have maintained ‘add’ or ‘buy’ on AEM Holdings, while KGI has kept its ‘outperform’ recommendation on the group.

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To CGS-CIMB analyst William Tng, AEM’s current share price weakness is a chance to accumulate more shares on the counter.

He has also kept his target price unchanged at $4.63 as he deems the group’s 1QFY2021 net profit as “within” expectations at 12.6% of his FY2021 expectations.

“We expect earnings to be 2HFY2021 loaded”, he says, as AEM’s management has guided for a stronger second half of the year, compared to the first half.

The group has also indicated that its financial performance for the 1HFY2021 will be weaker y-o-y.

The group has guided that FY2021 revenue is expected to be between $460 million to $520 million, which is within Tng’s FY2021 revenue forecast of $526.2 million.

“AEM’s FY2021 revenue guidance is backed by expectations of a production ramp up for its next generation test handlers in late 3QFY2021 and into FY2022,” writes Tng.

“In its 1QFY2021 business update call, we note that management was optimistic on the prospects of its business with Intel (INTC US, NR) and also highlighted the possibility that there could be meaningful revenue contributions from other customers in FY2022,” he adds. “We will be able to consolidate CEI’s financials when AEM announces its detailed financial statement for 1HFY2021 sometime in August.”

Meanwhile, DBS analysts Chung Wei Le and Ling Lee Keng have slashed their target price estimate to $4.73 from $5.36 previously, which is pegged to 13.7 times FY2021 earnings.

They have also reduced their earnings estimates for FY2021 and FY2022 by 12% and 7% as they expect AEM’s key customer to defer its orders in the 1HFY2021.

However, they write that they are “more optimistic” on AEM’s earnings and the “continued strong momentum in the industry”.

The way they see it, AEM has “undemanding valuations for a fundamentally strong company” and that it is in a “strategic position to benefit from its key customer and industry uptrend”.

“The stock is currently trading at 10.3 times FY2021 price-to-earnings (P/E), which is at a 51% discount to its peer average of 21.0 times. We are expecting earnings to grow at a compound annual growth rate (CAGR) of 10.0% from FY2020 to FY2023,” they write.

The analysts have advised investors to “look beyond the temporary blip” in the 1HFY2021 as they believe AEM will benefit from a pipeline of catalysts – including the ramp-up of its next generation tools to its key customer from 3QFY2021 – to boost its prospects from 2HFY2021 onwards.

“1QFY2021 results were underwhelming and we believe 2QFY2021 results could continue to be muted as well owing to its key customer transitioning from old to new tools,” they add.

KGI analyst Kenny Tan has, too, reduced his target price to $4.36 from $5.05 previously.


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“We maintain 14 times P/E peg, but take a 50-50 blended diluted earnings per share (EPS) between FY2021 and FY2022 for AEM’s core business, while including CEI’s $6 million of profit as part of the valuation,” Tan writes.

To Tan, the sales drop in the 1QFY2021 was “larger than expected” from its peak in 1QFY2020.

“Management expects CEI’s contribution to be similar to last year, thus AEM’s core sales is expected to be $320 million to $400 million, around 65% of our FY2021 estimate,” he says.

While the short term prospects look “bleak” for AEM, AEM’s acquisition of ATECO will enhance their offering for the memory IC market.

“We expect the move to help open up opportunities to the likes of Samsung and SK Hynix, though we view Micron as the partner of highest likelihood, given their proximity to AEM’s current bases of operation,” writes Tan.

To this end, Tan has reduced AEM’s FY2021 core revenue contribution to around $392 million from $550.4 million in his last report in March after moderating HDMT forecasts to around 2019’s level of production while reducing next gen test handler forecasts.

Like CGS’s Tng, Tan will integrate CEI’s numbers “at a later date”.

Maybank analyst Lai Gene Lih is the only analyst to increase his target price on AEM to $5.56 from $5.05 previously.

To him, investors should “focus on the recovery potential instead of transitory weakness”, in reference to AEM’s 1QFY2021 results.

1QFY2021’s PATMI was weak, “as expected”, due to the high base from the 1QFY2020 and cyclical softness.

He has thus cut his EPS estimates for the FY2021 by 23% to factor in margin dilution from CEI, but has raised EPS for the FY2022 by 4% on “optimism of earnings recovery”.

“As our concerns for cyclical softness have now materialised, and because we see this as transitory, we believe investors should focus at the realignment of cyclical recovery alongside structural growth momentum of AEM’s growth story,” he writes.

“Following this set of results, we believe street might cut target prices, which may introduce further short-term volatility. We would accumulate on any dips, as we believe AEM should revert to y-o-y growth in 4QFY2021,” he adds.

Furthermore, he views AEM’s expectations to derive meaningful revenue from 10 out of the top 20 semiconductor companies in FY2022 as “positive” as it “validates the proposition of AEM’s SLT solutions as advanced packaging technologies become increasingly mainstream”.

“Over time, we expect increasing contributions from non- Intel revenue sources,” says Lai.

As at 3.59pm, shares in AEM are trading 6 cents lower or 1.7% down at $3.57, or 3.9 times price-to-book (P/BV), according to Maybank’s estimates.