AEM and ISDN are among the top picks of KGI Singapore Research in its report 2H 2020 Outlook: Looking beyond the current pandemic


Analyst: Kenny Tan

AEM
We continue to observe strong tailwinds for AEM, despite rising competition from Advantest in 2020.

Advantest has stepped up efforts in gaining System Level Test (SLT) capabilities, with the acquisition of Essai in January 2020.

LokeWaiSan 2.2018Executive Chairman Loke Wai San.We expect the development to have little to no impact with AEM’s main customer, as Intel does not reappear as a key customer on Advantest’s FY19 statements.

However, given Advantest’s branding, this is likely to have medium to long term impact on AEM’s overall market share of the SLT business.

We also note that Intel has reappeared on Cohu’s financial statements as a key customer in FY19, with close to USD 65 mn of sales.

Key upside: Further order book wins, onboarding of major customers.

AEM 

Share price: 
$3.06

Target: 
$3.61

We see China’s semiconductor master plan take place in the form of SMIC’s US 6.6bn share sale, which was priced at a premium but highly subscribed by institutional investors.

While China’s overall goal is to seek self-sufficiency in the semiconductor industry, we think AEM remains a potential beneficiary, given the company and country’s relatively neutral geopolitical standing between China and US.

Key downside: Competitors’ R&D, Huawei sanctions – the uncertainty behind it will not only delay base station and AEM’s tester kit rollouts, but also lead to the loss of potential customers, who may look towards other 5G equipment makers like Ericsson.

However, impact is minimal on our target price, which remains at S$3.61.



ISDN
Formed in 1986, ISDN is an engineering solutions company specialising in industrial automation (IA), working through the entire engineering stage from conceptualisation to production and after-sales engineering support.

ISDN has their bulk of sales from China, supporting over 10,000 clients with both hardware and software solutions.

TeoCherKoon619aMD Teo Cher KoonIA has had a substantial downcycle, which was further dragged down by COVID-19 and US-China trade tensions.

Orders from Japan Machine Tool Builders’ Association (JMTBA) illustrate the prolonged downcycle, where the latest released May data is likely to be the bottom, with a sharp QoQ % rebound.

While global demand for IA is likely to remain sluggish, we think China will be the first to revive the industry, in alignment with its focus on digitalization and transformation away from labour and into tech.

We expect upgrades to traditional industrial factories to become smarter, equipped with higher levels of automation and enabled by 5G, AI and IoT.

These plans, while an ongoing process, are now further catalysed by the increased safety measures placed on human labour, such as the need for social distancing.

Based on latest results, a Chinese rebound may have occurred as Industrial Automation peers have reported strong orders or sales from China.

Yaskawa’s latest financial statements were released on 10 July, stating sales improvement from China in the Motion Control and Robotics segment.

The rebound may have occurred as early as late March, as Schneider Electric and a few other major IA players report improving sales from China towards the end of 1Q20, with a positive China outlook.

 


Share Prices

Counter NameLastChange
AEM Holdings3.6600.090
AusGroup0.023-0.001
Avi-Tech Electronics0.445-
Best World Int.1.360-
CEI0.855-
China Sunsine0.320-0.015
CNMC GoldMine0.320-0.015
CSE Global0.5100.030
Food Empire0.510-0.010
Golden Energy0.155-
GSS Energy0.061-0.002
ISDN Holdings0.2900.025
ISOTeam0.142-0.002
IX Biopharma0.2800.010
JB Foods0.595-
KSH Holdings0.330-0.015
Medtecs Intl1.0100.110
Moya Asia0.0720.013
Nordic Group0.210-
Oxley Holdings0.210-0.005
Procurri0.295-0.005
REX International0.181-0.001
Riverstone3.9900.230
Roxy-Pacific0.3250.005
Sing Holdings0.370-
SingMedical0.2600.005
Straco Corp.0.470-
Sunningdale Tech1.0400.030
Sunpower Group0.4600.015
The Trendlines0.1050.001
Tiong Seng0.160-
Uni-Asia Group0.470-0.020
Yangzijiang Shipbldg0.895-0.020

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