ChandranNair CEO11.20CEO Chandran Nair speaking on a 3Q earnings call:

On spillover effects of US-China trade war: "There will always be some risks as the tensions ebb and flow with regards to the two 
giant economies that we want to serve. With some of our most competitive products fortunately all the IPs reside outside of US and outside of China. So our ability to serve both those markets should remain untouched. But there have been restrictions that have come out which no company would have ever expected in the past, so I can't speak to all combinations of possible retsrictions but what we see currently doesn't constrain AEM too much."

On whether AEM's first-generation test handlers (from many years ago) will stop shipping: 
“There will be a mixture. It depends on our customers and the end-customers demand on our customer. They will make capital expenses based on how they want to optimize what products can be tested on which platform and how. What is very, very clear is that our new generation of products brings great amounts of productivity gains to our customer.”

Excerpts from DBS report

Analysts: Wei Le CHUNG & Lee Keng LING

Stellar as ever
• 3Q20 net profit above expectations, increased 77.4% y-o-y to S$24.3m


Share price: 


• 3Q20 revenue increased 93.0% to S$161.8m

• Management raised FY20F sales guidance by 4% to S$500-520m

• Maintain BUY with a higher TP of S$5.16

Investment Thesis:
Undemanding valuations for a fundamentally strong company. AEM is in a strategic position to benefit from its key customer and industry uptrend.

It is trading at 9.2x FY21F PE, which is undemanding to its peer average of 19.9x.

Semiconductor industry momentum remains strong.
Industry associations are forecasting an accelerated growth for semiconductors in 2021.

The US semiconductor equipment billings continued to increase 40.4% y-o-y in September.

Mission-critical applications to drive longer test times and system-level tests. The complexity and shrinking nodes used in mission-critical applications such as 5G, EV, and AI, are driving longer test times and require system-level tests to ensure compatibility and interconnection between components.

Valuation: Maintain BUY and TP of S$5.16
We have raised FY20F/21F earnings by 4/4% on a strong set of 3Q20 results and higher FY20F revenue guidance.

We maintain our valuation peg at 13.7x FY21F earnings, which is at a discount to its international peer market cap-weighted average of c.19.9x.

Raise FY20F/21 earnings by 4/4% on strong 3Q20 results and higher revenue guidance. Management has a track record of beating its sales guidance in its previous years and we think this year is no different. We are raising our FY20F revenue by 4% to S$530.4m, which is above management’s guidance on a strong set of 3Q20 results. We are also raising our FY21F revenue by 4% to S$101.5m on a better-thanexpected FY20F performance."

-- DBS report

Where we differ: We are more optimistic on AEM’s earnings and the pick-up in momentum in the industry.

Key Risks to Our View: Single-customer concentration risk, escalation of geopolitical events, protraction of the COVID-19 pandemic, and FX risk.

Full report here

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