Excerpts from Maybank Kim Eng report

Analyst: Lai Gene Lih, CFA

AEM Holdings (AEM SP): Hat trick hero

3rd positive revision to FY19 guidance; TP +7%
As a result of stronger than expected momentum, AEM has raised FY19 revenue guidance for the 3rd time this year.

AEM 

Share price: 
$1.19

Target: 
$1.50

In response, we raise FY19E earnings by 10%.

Although FY20-21E earnings are largely unchanged, we continue to see upside from new projects.

Maintain BUY with increased ROE-g/COE-g TP of SGD1.50, based on 3.2x (prev: 3x) blended FY19-20E P/BV.

Strong 2020E orders is a catalyst for the stock, while a key risk is a sharp drop in the demand of the key customer’s chips.


Stronger than expected momentum in FY19E
FY19E revenue guidance is now SGD285-305m, up from SGD265-280m.

mgt4.18L-R: CFO Soh Wai Kong | CEO Chok Yean Hung | Executive chairman Loke Wai San.
NextInsight file photo.
We believe our new revenue estimate is conservative as AEM has received SGD280m of orders YTD to be fulfilled by the end of the year.

The increase in guidance is driven by stronger than expected order momentum of HDMT and STHI test handlers, due to the rising significance of system level test at the customer.

New projects underpin FY20-21E prospects
We continue to see upside to our FY20-21E earnings, as these have not baked in the

i) potential of frontloading of 2021 orders into 2020, as the key customer pushes for 7nm chips by 2021;

ii) contributions from the hybrid project for the key customer; and

iii) contributions from 5G cable test equipment for Huawei.


Based on our scenario analysis of the first two factors (link), we estimate potential ROE-g/COE-g fair value of SGD1.77, on a blended FY20-21E basis.

The FY20-21E earnings outcome of the scenario analysis is around SGD40m p.a., a sustained level despite FY19 shaping to be a high base.

Key risks
FY20 guidance, when released in Jan-Feb 2020, should give us a stronger basis to forecast contributions from the hybrid project and Huawei.

A key risk to our forecasts is if there is if there is a sharp demand drop for the customer’s chips, as this could create slack capacity and delayed orders.


Full report here


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