Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

Tester capability strengthens AEM
■ AEM has announced the acquisition of Mu-TEST, adding low-cost tester capabilities to its fold.

AEM 

Share price: 
$1.99

Target: 
$2.12

■ We think the acquisition is a positive for AEM’s long-term developments and see limited earnings impact for the moment.

■ Maintain Add and TP of S$2.12. The next share price catalyst could be in Jan 20 when AEM provides FY20 revenue guidance.


Acquiring tester capability
AEM has announced the acquisition of a 100% stake in an automated test equipment (ATE) company – Mu-TEST (unlisted).

With this acquisition, AEM adds customised tester development capabilities to its fold.

We think this will enable the group to offer a complete testing solution to prospective clients over time and could help AEM expand its business.

Payment structure aligns interests
AEM will pay EUR7.525m (S$11.37m) for the entire stake in Mu-TEST. Founder and CEO of Mu-TEST Mr Mathieu Duprez will stay on as General Manager and Director post the acquisition.

The acquisition consideration is based on an enterprise value of EUR8m and assumes an estimated net debt of EUR0.475m as of 31 December 2019.

AEM will pay a cash consideration of EUR4,890,314 to the vendors upon completion of the acquisition.

There will be a one-year holdback of EUR913,912 and a three-year performance earn out of EUR1,721,774 by way of cash or shares to Mr Duprez and a further incentive bonus of EUR344,155 if Mu-TEST achieves certain revenue targets in FY2021 and FY2022.

Mu-TEST’s value proposition – customisable low-cost testing
Incorporated in 2010 in France, Mu-TEST (based in Saint Etienne) is a semiconductor test solutions provider in the ATE industry. Mu-TEST is a pioneer in offering disruptive low-cost testers based on field programmable gate arrays (FPGA).

This highly customisable low-cost tester architecture complements AEM’s AMPS offering to deliver complete system level test (SLT) solutions for the semiconductor and electronics industries.

From its website, we understand that Mu-Test’s customers include Thales Group (HO FP, Unrated), which uses Mu-TEST’s revolutionary ATE offerings to test devices including memories (Flash, DDR, etc.) and digital (FPGA, ASICs, etc.) products, and Cisco Systems Inc (CSCO US, Unrated).

Maintain Add and TP S$2.12
williamtng4.14William Tng, CFA.We maintain our Add call and TP of S$2.12 (based on ROE-g/COE-g derived P/BV multiple of 3.58x).

Potential re-rating catalysts include further order wins from its major customer. We think AEM could provide FY20 revenue guidance in Jan 20. The key downside risks are order pullbacks or a slowdown at its major customer.

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