SINGAPORE (Jan 24): CIMB is keeping AEM Holdings at "add" after lifting its FY17 pre-tax profit guidance to between $35 million and $37 million.

Given the higher earnings forecasts, CIMB is raising its target price to $5.97, or 10 times FY19 earnings, from $4.55 previously.

In its last guidance on Nov 2, 2017, the provider of handling and test solutions to semiconductor manufacturers, expected a pre-tax profit of at least $32 million.

See: AEM's 3Q earnings up more than fourfold at $9.4 mil on more than double revenue

"We believe the positive update to AEM’s FY17 guidance is the result of higher sales, better product mix and operational efficiency. AEM’s gross material margin has been on the uptrend," says analyst William Tng in a Tuesday report.

This is driven by strong order momentum from its major customer -- AEM is said to be the sole supplier for chipmaker Intel's latest test handler -- and illustrated by its order win announcements. On Nov 30 2017, AEM announced $76 million worth of orders for delivery in 1H18. On Dec 21, this number was raised to $100 million.

AEM expects to release its 4Q17/FY17 results on Feb 23. According to CIMB, in line with its improving financial performance, AEM’s board is considering issuing bonus shares to reward shareholders.

"We view this positively as liquidity could improve and this could pave the way for institutional funds to become shareholders," says Tng.

CIMB is raising its EPS forecasts by 16.2% for FY17 and 33.6% and 31.3% for FY18 and FY19.

"Our higher forecasts result from higher revenue as we increase our unit sold assumptions. We have also raised our gross material margin assumptions as cost efficiencies kick in. Our tax rate assumption over FY17-19 remains at 17%," adds the analyst.

Further rerating catalysts include stronger-than-expected order momentum from its major customer and M&As by AEM, says CIMB.

As at 11am, shares in AEM are trading 8 cents higher at $4.24.