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Maybank Securities downgrade AEM Holdings to 'sell' as margins could be impacted

Felicia Tan
Felicia Tan1/9/2023 12:42 PM GMT+08  • 2 min read
Maybank Securities downgrade AEM Holdings to 'sell' as margins could be impacted
In addition to the downgrade, Maybank's Jarick Seet has also lowered his target price to $3.08. Photo: Samuel Isaac Chua/The Edge Singapore
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Maybank Securities analyst Jarick Seet has downgraded AEM Holdings to “sell” from “hold” previously.

In his report dated Jan 8, the analyst sees that the company’s margins could be squeezed amid chipmakers cutting costs and lowering their spending plans.

“Intel has already announced plans to cut costs by US$3 billion ($4.01 billion) this year and to delay some equipment purchases. We suspect that AEM’s margins may be hurt if key customers are not faring well,” Seet writes.

To this end, the analyst believes AEM’s results in the 1HFY2023 ending June 30 won’t be as great as its “robust” 1HFY2022, which saw an “exceptional surge” in orders by AEM’s key customer. “[This] will likely not be replicated in the 1HFY2023,” says Seet.

“We expect 1HFY2023 to show a decline y-o-y but this should be partly mitigated by orders from new customers as shown in the surge in inventory to $117.6 million at end-September 2022 from end-December 2021,” he adds. “We also expect orders to be more evenly distributed throughout the four quarters in FY2023.”

On this, Seet has cut his FY2023 earnings estimate by 5%. The analyst has also lowered his target price to $3.08 from $3.43 previously. This comes as he lowers his pegged P/E to 8.5x from 9.0x FY2023 P/E.

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Despite AEM’s share price correction, Seet still sees downside risks in the form of the weak outlook from its key customer. The looming recession in Europe and the US is also a downside risk.

“We are confident in AEM’s mid-long term prospects but short-term headwinds may present lower priced entry levels in the near-term for investors,” says Seet.

Among the semiconductor stocks, Seet has indicated his preference for UMS due to its strong order-book and earnings growth despite the current weak macro outlook.

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He has given UMS a “buy” rating with a target price of $1.34.

As at 12.41pm, shares in AEM are trading 6 cents lower or 1.72% down at $3.42. Shares in UMS are trading 1 cent lower or 0.81% down at $1.22.

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