AEM: "Continues to be a conviction pick," says Maybank KE

Excerpts from Maybank Kim Eng report

Analyst: Gene Lih Lai

Still see opportunity for positive guidance revisions
2H21 revenue grew 52.2% YoY to SGD245.3m, driven by the volume ramp of HDBI (high density burn-in) and HST (HDMx system test) test handlers for Intel.

FY21 revenue was SGD565.5m (+9% YoY), surpassing guidance of SGD525-550m.

Management has expressed confidence in
i) achieving FY22E revenue guidance of SGD670-720m, based on current demand and supply side dynamics; and
ii) maintaining the c.17% net margin levels achieved in 4Q21 – which should assuage investor concerns on margin erosion.

Our current forecasts reflect the upper end of management’s guidance, and imply a 17% net margin.

As the year is still early, we still see opportunity for positive revenue guidance revisions, as this has been common historically.

Cyclical and structural drivers Gene Lih Lai, analyst2H21 results and industry fundamentals support our view that AEM is early in the current earnings cycle. We expect FY22E to be driven by i) continued ramp of HDBI and HST, as well as initial ramp from AMPS (asynchronous, modular, parallel, smart). FY23-24E drivers include i) Intel’s capacity expansion (e.g. new Penang assembly and test plant expected to commence production in 2024); as well as ii) continued ramp for new AMPS customer(s). The rise in front-end capex should pave way for back-end capex, and we believe AEM should benefit from this with most of its customers.

Risks
In our view, key risks include unexpected worsening of supply-side problems due to Covid-19. Currently, we do not expect the Russian-Ukraine conflict to alter AEM’s customers’ capex plans.

Longer-term, a risk to our view is if chip oversupply tempers customers’ capacity addition plans.

Full report here.