Excerpts from CIMB report
Analyst: William Tng, CFA

Trading at 6.4X FY18F

williamtng4.14"We believe its share price has yet to peak as: a) AEM is trading at 6.4x/5.8x FY18F/19F P/E versus 19%/11% core EPS growth, and
b) AEM is on track to deliver 311% core EPS growth in FY17F, based on our estimates."

- William Tng, CFA
(photo)

Has the share price peaked?
YTD, AEM’s share price has gained 278%, reaching a high of S$2.77 on 5 Jun 2017. The share price corrected to a low of S$2.07 on 28 June, mirroring the tech stock sell-off on the NASDAQ. 

Share price driver #1: Potential FY17 earnings surprise.
In its 1Q17 results announcement, AEM guided for 9M17F revenue of S$142m and pretax profit of S$17.5m. Based on our analysis of its profit guidance (see Figure 1), AEM is on track to deliver 300%/136% yoy growth in net profit for 2Q17F/3Q17F.

We note that sales orders received that can be recognised as revenue in FY17F have risen from S$130m (3 Mar 2017) to S$152m (18 Apr 2017) and subsequently, to S$182m in a 5 Jun 2017 announcement.

Share price driver #2: Potential M&As
AEM already has an established management in place and its business with its key customer has taken off firmly. On 5 Jun 2017, major shareholder Orion Phoenix placed out 2.7m shares at S$2.70 to various long-only institutional funds, reducing its stake to 23.96%.

AEM

Stock price: 
$2.20

Target price: 
$3.39

Orion Phoenix will need to exit its investment in AEM within the next five years as the fund goes end-of-life. These factors make it conducive for any potential M&A talks with interested third parties.

Share price driver #3: Dividends
In its 2016 annual report, AEM Chairman wrote that “with clear visibility of growth into the next few years, we intend to adopt a dividend policy to pay annual dividends, including interim dividends, of not less than 25% of profit after tax excluding non-recurring, one-off and exceptional items".

AEM has also indicated its confidence in its current business with the major customer with a 1-for-2 bonus issue (completed). Based on the 25% payout guidance, we estimate decent dividend yields of 3.3-4.4% over FY17-19F.

No fundamental reason for sell-down; Maintain Add
Our calls to management revealed no fundamental issues. As such, we maintain our Add call and target price of S$3.39 based on 10x FY18F P/E (at 15% discount to its major customer's P/E and 2% discount to peer average P/E). Order pushback by its key customer is a downside risk to our call.

Full report here.


Share Prices

Counter NameLastChange
AEM Holdings3.240-0.010
Alliance Mineral0.330-0.005
AusGroup0.038-0.001
Avi-Tech Electronics0.470-0.020
Best World Int.1.280-0.020
China Sunsine0.935-0.005
CWG International0.1470.001
DISA Limited0.0130.001
Dutech Holdings0.350-
Federal Int. (2000)0.420-0.010
Food Empire0.6950.010
Geo Energy0.265-
Golden Energy0.4200.025
GSS Energy0.1670.002
Heeton Holdings0.550-0.005
ISOTeam0.3600.010
KSH Holdings0.8400.005
Lian Beng Group0.780-0.010
Miyoshi0.0780.003
Nordic Group0.5600.010
Oxley Holdings0.650-0.005
REX International0.0550.001
Riverstone1.050-
Roxy-Pacific0.5250.005
Serial System0.172-
Sing Holdings0.450-0.005
Sino Grandness0.210-
Straco Corp.0.850-0.005
Sunningdale Tech1.9500.020
Sunpower Group0.5750.035
The Trendlines0.1480.001
Tiong Seng0.375-
Trek 2000 Int.0.275-
Uni-Asia Group1.2700.010
XMH Holdings0.250-
Yangzijiang Shipbldg1.690-0.020

NextInsight RSS

rss_2 NextInsight - Latest News

Online Now

We have 567 guests and one member online

  • nuttyxj