Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

Starting FY21 with an acquisition

■ AEM has announced the acquisition of CEI Ltd, a contract manufacturer listed in Singapore.

AEM 

Share price: 
$3.67

Target: 
$4.63

■ The acquisition could help AEM’s vertical integration and customer diversification efforts.

■ Reiterate Add. Next key catalyst will be the upcoming FY21F revenue guidance in 1Q21F.


Announces acquisition of a contract manufacturer
AEM Holdings Ltd (AEM), through its wholly-owned subsidiary AEM Singapore Pte Ltd, has made a voluntary conditional offer for CEI Ltd (CEI SP, NR), subject to the satisfaction of the pre-condition that the quotation of new AEM shares to satisfy this offer will be approved by the Singapore Exchange Securities Trading Limited (SGX-ST).

CEI shareholders can choose to accept the offer in one of three forms:

1) S$1.15 per share in cash;
2) S$0.9775 in cash per share and 0.0486 new AEM shares (85/15 cash shares consideration), or
3) S$0.8050 in cash per share and 0.0972 new AEM shares (70/30 cash shares consideration).

The offer is also subject to AEM acquiring (by the close of the offer) a more than 50% stake in CEI.

About CEI
CEI (listed on the Main Board of the SGX-ST since Mar 2000) is a contract manufacturer which is involved in the design and manufacture of proprietary equipment, assembly of printed circuit boards, box-build, prototyping and value add engineering work, such as circuit layout and functional design.

CEI also designs and manufactures its own brand of proprietary equipment for the semiconductor industry. Its factories are located in Singapore, Indonesia and Vietnam.

Offer consideration
The offer price of S$1.15 per share translates to an historical FY12/19 P/E of 13.9x, EV/EBITDA of 9.44x and 1H20 P/BV of 2.58X for CEI.

CEI reported a net profit of S$7.2m for FY19 and a net profit of S$2.9m for 1H20.

As at end Jun-2020, CEI’s net cash position was S$3.5m.

On a pro-forma basis, the acquisition will be EPS accretive for AEM (see Figure 1).

The major shareholders of CEI with a combined 23.68% stake have given their irrevocable undertaking to accept the offer from AEM subject to the satisfaction of the pre-condition mentioned earlier.

AEM intends to delist CEI if its offer is successful.

Reiterate Add
williamtng4.14William Tng, CFAWe reiterate our Add call and TP of S$4.63, based on Gordon-Growth derived P/BV multiple of 6.09x (unchanged).

Re-rating catalysts are FY21F revenue guidance which we think AEM will issue in early-2021.

Downside risks are delivery delays due to lockdowns/movement restriction extensions and loss of competitiveness by its key customer.


Full report here. 


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