SINGAPORE (Feb 2): CIMB Research is keeping its “add” recommendation on AEM Holdings and raising its target price by close to 11% to $6.62.
This comes after AEM announced the acquisition of Finnish micro-electro-mechanical systems (MEMS) testing and handling solutions provider Afore Oy for 7.6 million euros ($12.3 million).
See: AEM Holdings acquires Finnish MEMs testing provider; expects FY18 to outpeform, mulls bonus shares
In a report on Thursday, CIMB analyst William Tng says the Afore acquisition is “game-changing” and brings “exciting opportunities” for AEM.
“The combination of AEM and Afore should yield significant business synergies through the combination of Afore’s products and technology capabilities with AEM’s global sales, manufacturing and field support networks,” Tng says.
“Given Afore’s small earnings base and integration synergies with AEM, we believe Afore could register 20% profit growth in FY18-19F,” he adds.
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Meanwhile, Tng opines that AEM’s management team has been further strengthened amid a number of changes among its board members and senior management team.
In a filing to SGX on Thursday, AEM announced that, as part of its succession plan, current COO Chok Yean Hung will take over the helm from CEO Charles Cher from Apr 1, 2018.
Cher, who was previously persuaded out of retirement to help drive AEM’s business with its key customer, will retire from his position as CEO and director of AEM, but will remain as senior advisor of the board of AEM until the end of the year.
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At the same time, AEM announced the promotion of Goh Meng Kiang to VP of Operations, Soh Wai Kong to VP of Finance, and a new appointment of Chua Tat Ming as VP of Engineering.
Meanwhile, Keith Hsiang-Wen Toh has been re-designated to non-executive non-independent director, as his focus switches to assisting AEM with strategic projects including the integration of its recently announced acquisitions.
“We believe our previously revised gross material margins for FY18-19F are still too conservative and hence adjust them upwards again,” says Tng. “We also factor in the profit contribution from the Afore acquisition for the FY18-19F period and the higher share base of 66.3 million due to 867,555 shares to be issued for the acquisition.”
As at 12.52pm, shares of AEM are trading 9.9% higher, or up 49 cents, at $5.46. This implies an estimated price-to-earnings ratio of 8.8 times and a dividend yield of 3.4% for FY18.
