Excerpts from DBS Vickers report
Entering a new growth phase  Loke Wai San, non-executive chairman of AEM. NextInsight file photo • Successful development of next-gen equipment sets AEM on a new growth path • Firm equipment order pipeline and recurring sale of high-margin consumables from key client’s migration exercise lends visibility beyond next three years • Project earnings growth at 75.6% CAGR over FY16- FY19F • Fair value of S$3.35, based on 10x FY18F PE |
The Business
Leading global provider of high-end test handlers.
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AEM |
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Stock price: |
Fair value: |
Years of engineering investments for AEM Holdings – a customised automation solutions provider for highly complex industrial applications - are starting to bear fruit. The commercial ramp-up of AEM’s newly developed, next-gen high density modular test platform for a key client, alone, represents a multi-year opportunity for the group.
Earnings projected to grow at 75.6% CAGR from FY16-FY19F but earnings visibility extends well beyond the next three years.
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“Beyond one-off equipment sales, known upgrade opportunities and recurring sale of higher-margin consumables over the life of these equipment are also indicative of future earnings potential. Apart from replacement demand, order wins in new sectors (i.e. from the chip-intensive 5G space) could provide further upside.” |
Benefitting from the start of a key client’s multi-year migration programme to its next-gen test handler platform, AEM’s FY17F order book surged to S$152m (as at 15 April 2017), and is set to remain firm in the coming years.
The Stock
Fair value of S$3.35 based on 10x FY18F PE.
With reference to close peers Cohu and UMS Holdings, which are also engaged in semiconductor equipment manufacturing, we opine that AEM should at least trade at -1SD of their average 3-year forward PE given its smaller scale and key client risk.
We thus value the company at S$3.35 based on 10x FY18F PE (vs peers’ 13x).
Key client risk. AEM’s key client is projected to contribute 80- 90% of the group’s earnings. Delays to their migration plans could significantly weigh on AEM’s future performance.
Full report on pg 28-33 here.
