Excerpts from Maybank KE report
Analyst: Gene Lih Lai
|Decent runway ahead
Investment case: beneficiary of rising SLT relevance
We see AEM as a beneficiary of system level test adoption (SLT), as we believe SLT is increasingly relevant due to advanced packaging technology and shrinking transistor sizes.
We also see Intel’s IDM2.0 strategy as an underappreciated catalyst for AEM, contingent on Intel’s strong execution.
Catalysts: earnings recovery in 2H21 into 2022
|i) resumption of YoY earnings growth in 4Q21 into 2022 – as AEM rolls out new generations of HDMT test handlers, which cater for high-performance computing;
ii) meaningful revenue contributions from 10 out of top 20 semiconductor customers globally – which infers that AEM’s solutions are gaining traction outside of Intel; and
iii) Intel’s front-end capacity expansion and IDM2.0 strategy - which should eventually benefit back-end suppliers such as AEM.
Valuations: revenue diversification could narrow gap
Our TP is based on 14x FY22E P/E, as we believe investors should focus on the realignment of cyclical and structural factors, rather than transitory weakness in 1H21.
On FY21E basis, AEM is trading at 13x P/E.
For comparison, Singapore-listed tech stocks/ global test-handler peers/ global back-end equipment peers are trading at 15x/18x/25x FY21E P/E.
As AEM continues to diversify revenues, we see potential for the valuation gap to narrow.
Key customer’s market share is key risk
Thus far, we believe AEM’s Malaysia production is not materially affected by the 60% worker cap placed by the government during tightened MCO and lockdown.
However, a significant worsening of the Covid-19 situation in Malaysia may be a key risk to this.
Longer term, we believe Intel’s market share is a key risk to observe as this likely influences chip volumes that are tested using AEM’s equipment.