Excerpts from Maybank Kim Eng report

Analyst: Lai Gene Lih, CFA

Positive sales guidance; Maintain BUY
Amid an expected slowdown of HDMT test handlers (TH) sales, 4Q18 PATMI fell 55% YoY on the back of a 33% drop in revenue. Still, FY18 PATMI of SGD33.5m (+6.4%) met our expectation (Consensus N.M.). 


Share price: 


We raise FY19 EPS by 8% and leave FY20 unchanged after factoring in AEM’s FY19 sales guidance that exceeded our expectation.

ROE-g/COE-g TP is raised by 2% to SGD1.24, now based on 2.8x average FY19-20E P/B, from 2.9x previously. Stronger-than-expected order wins are a key catalyst.

LokeWaiSan1 2.2017Loke Wai San, executive chairman, AEM. NextInsight file photoSlowing HDMT handlers sales anticipated

Management had already flagged the slowdown in HDMT TH sales in prior quarters.

For FY19E, AEM continues to expect a lower level of HDMT TH sales compared to FY18.

We still see a potential recovery of HDMT TH sales in FY20E due to:

i) completion of capacity expansion for a key customer in Israel; and
ii) launch of new chips and/or chip platforms.

Still on the conservative side of revenue guidance
Brief2.19FY18 results briefing. Photo by Sua Xiu Kai.Our updated revenue forecast of SGD193m is on the conservative end of the guidance range of SGD180-210m to factor in risks like order delays/cancellations.

Upside potential to our estimate could arise from further evidence of continued strong order wins (SGD140m of order wins YTD to be largely delivered within 9M19 vs. SGD115m as at Jan-18.

Lai Gene LihLai Gene Lih, CFABuilding the runway for FY20E
The first solutions for Huawei (Inspirain customer) and the memory customer (AMPS solution) will be delivered in 2019.

In 2020, AEM continues to expect production ramp ups for its key customer (USD235b market cap chipmaker), Huawei and the memory customer.

We remain positive on the shares and reiterate BUY with 18% upside to our TP over the next 12 months.

Going forward, as management has tipped that quarterly earnings could be lumpy, we expect share price volatility.

Any resultant share price weakness would provide an even more attractive entry point, assuming other material factors are unchanged.

Full report here.

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