AEM Holdings’ stellar results in 1H FY20 have led analysts to become more bullish on the stock by raising their respective target prices for the semiconductor system level test and handling solutions company.

See: AEM Holdings 1H20 earnings surge 149.9% to $55.3 mil

DBS Group Research and Maybank Kim Eng now have target prices of $4.96 and $4.26, respectively, up from $3.53 and $4.04 previously.

Similarly, CGS-CIMB Research and KGI Securities now have target prices of $4.63 and $4.60, respectively, up from $3.58 and $4.24 previously.

DBS and Maybank KE have kept their “buy” ratings for the stock. CGS-CIMB and KGI, too, have maintained their “add” and “outperform” recommendations, respectively.

On Aug 3, AEM reported earnings more than doubled to $55.3 million on the back of higher revenue, favourable product mix and operational cost efficiency.

The company’s revenue surged 81.7% y-o-y to $273.7 million, owing to higher sales in all business segments and higher number of sales to new customers.

DBS says it is still positive on AEM based on the continued increase in the US semiconductor equipment billings and the longer-term semiconductor recovery.

“We believe that new technology (5G, electric vehicles, and AI), which continues to drive up demand in testing services, and the higher demand for cloud due to increased working-from-home, will continue to benefit AEM,” DBS analyst Ling Lee Keng and the research team write in a note dated Aug 5.

Maybank KE shares a similar view. Citing VLSI Research, it says system level test spending is expected to enjoy a compounded annual growth rate of 21.6% from 2019 to 2024.

This is more than four times the growth rate of wafer sort and functional test spending at 4.9%, it says.

“We are positive towards AEM’s long-term prospects in SLT,” Maybank KE analyst Lai Gene Lih writes in an Aug 4 report.

Against this bullish outlook, analysts have upgraded their earnings forecasts.

CGS-CIMB says it has raised its earnings per share (EPS) forecasts for FY20-22 by 13%-68% to factor in the company’s guidance of higher revenue this year.

Similarly, Maybank KE says it has raised its EPS forecasts for FY20-21 by 2%-7%.

Nevertheless, there are long term risks for AEM.

KGI says it is still uncertain whether Intel Corp – a key customer of the company – will deliver its 10 nm product line-up,

It is also uncertain whether chipmaker can reduce the process leadership gap by being true to its word and produce 7 nm process node chips in 2022.

“Additional delays will chalk up greater uncertainty for AEM’s long term prospects,” KGI analyst Tan Jiunn Chyuan says in an Aug 4 note.

As at 2.43 pm, AEM was down 4 cents or 1% at $4.15 with 8.6 million shares changed hands.