One of Singapore's best-known tech stocks, AEM offers plenty of upside still, according to analysts. CGS-CIMB's target price is $4.63 while Maybank Kim Eng's, $5.05 and KGI, $5.26 (the highest). Here's the latest from DBS....

Excerpts from DBS report

Analysts: Wei Le CHUNG & Lee Keng LING

What’s New
• Proposed acquisition of CEI for S$99.7m; we rate the acquisition neutral at best


Share price: 


• Acquisition price is fair at 15.6x PE which is the industry peer average

• Estimated to be 11-13% accretive to FY19 EPS

• Maintain BUY and 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.

The stock is trading at 9.8x FY21F PE, undemanding to its peer average of 19.9x.

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

The US semiconductor equipment billings continues to rise, and recorded 40.4% y-o-y increase in September.

Proposed acquisition of CEI is neutral at best. While the acquisition price is fair (peer average TTM PE of 15.6x) and there is EPS accretion of 11-13%, we think that the acquisition does not directly complement AEM’s business nor is it very helpful in advancing its technological capabilities.

Maintain financials. We are maintaining our financials as we await more clarity on the outcome of the offer.

Maintain BUY and TP of S$5.16. We maintain our FY20F/21F earnings.

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

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.

Test graphic1.21

Maintain BUY and TP of S$5.16 as we remain positive on AEM’s longer-term outlook.

In the longer term, we are positive on AEM’s key customer, Intel’s focus and developments.

We believe that its ramp up of its 10-nm semiconductor chips will continue to be driven by
1) development of new technology (5G, IoT, autonomous driving, AI and quantum computing) and
2) pandemic-induced structural changes (cloud computing and notebook).
The pandemic has increased work-from-home and study-from-home arrangements and we believe that this is a structural change.

Companies are considering remote working arrangements as they will be able to save on rent.

Given the limited visibility but strong industry momentum, we do not rule out further earnings upgrade for AEM as seen in FY20F.

We maintain our valuation peg at 13.7x FY21F earnings (same as its previous peak in 2018), which is at a discount to its international peer market cap-weighted average of c.19.9x

Full report here. 

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