Excerpts from Maybank Kim Eng report

Analyst: Gene Lih Lai

FY20 another record year
2H20 beat; maintain BUY
2H20 PATMI of SGD42.3m (+38.9% YoY) was 8%/5% ahead of our and consensus expectations, largely driven by requirements by key customer Intel.


Share price: 


The beat vs. our expectation was due to lower-than-expected staff costs and other expenses.

As AEM is unable to provide FY21 guidance currently, our forecasts are largely unchanged, and we maintain TP of SGD5.05 (14x FY21E P/E). BUY.

Key customer drives strong revenue growth
2H20 revenue rose 42% YoY to SGD245.3m, on the back of increased requirements from the key customer.

Gross material margin fell 4.5ppt YoY due to higher share of tools and machine sales (63% of revenue), which commands lower margins than consumables and services.

Staff costs rose 42% YoY due to additional headcounts for R&D, other projects, as well as with the inclusion of Mu-TEST and DB-Design.

Competition heating up
Management reiterated that as heterogeneous packaging becomes increasingly mainstream chipmakers’ recognition of the need for system level test (SLT) has also increased.

However, AEM expects competition to increase from major test equipment players in SLT as well.

To maintain its edge, AEM intends to continue strengthening its capabilities in-house, as well as via M&A.


Risks and upside scenarios
The CEI acquisition is expected to close within 1H20.

AEM also announced the acquisition of Lattice Innovation, which is expected to enhance AEM’s capabilities in active thermal control.

Our forecasts do not include contributions from CEI nor Lattice currently. We believe key risk to our FY21 earnings estimate is if there are high-base effects from strong HDMT performance in FY20.

Contrastingly, we believe upside drivers are:

i) accretive M&A;
ii) better-than-expected cloud/ 5G spending momentum in 2H21; and/or
iii) if customer Intel benefits from share gains as a result of tight foundry capacity faced by competitors.

Full report here. 

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