Excerpts from UOB KH report

Alpha Picks:
Add Sembcorp Industries And BRC Asia,
Remove Keppel Corp And MM2

Our Alpha Picks outperformed the STI in Jul 22, increasing by 5.4% on a market cap weighted basis vs the market’s 3.5% increase.

For Aug 22, we add Sembcorp Industries as we believe it will continue to re-rate on the back of its green energy expansion and BRC Asia to ride on the upturn in the construction industry.

We have taken out Keppel Corp following a positive share price rally after 1H22 results. We have also removed MM2 due to a lack of near-term catalysts.

UOBalpha8.22

AEM Holdings – BUY (analyst: John Cheong)
System-in-Package design shift to revolutionise semiconductor manufacturing. Key customer Intel Corporation’s (Intel) March IDM 2.0 strategy is a major bet that future demand and profitability lie in the packaging of modular dies (or chips), known as tiles, which can squeeze more compute within a single package.

Driving towards that goal, Intel intends to build new fabrication plants (fabs) for these new tiled chips, and is expected to outsource the production of certain modules. Existing capacity has also been earmarked for the foundry services market.

Sustained demand for AEM’s total portfolio. Intel’s decision to maintain old fabs and build new ones means that AEM will enjoy:

a) steady demand for its consumables and services,
b) recurring but cyclical demand for equipment upgrades at Intel’s old fabs, and
c) demand for new equipment to test the new tiled chip products.

That said, AEM provides mainly backend test equipment, where demand typically comes 6-9 months following the installation of front-end equipment at the new fabs. Additionally, management expects engagements with 10 of the top 20 global semiconductor companies to result in meaningful revenue contributions in 2H22 and beyond.

Top AEM11.21

Acquisition of CEI to lead to cost savings. We further estimate AEM to generate meaningful cost savings at the gross level of S$5.6m-9.0m a year, by in-sourcing some of its production activities to CEI Limited (CEI).

At the entity level, CEI is expected to also contribute S$4.0m a year of incremental net profit to the overall group. We believe our estimates are conservative as we have not factored in further upside from capacity expansion in CEI’s box-build business.

Maintain BUY. We value the company at S$5.60/share, implying 15.6x 2022F earnings.

Our valuation is at a premium to the Singapore peer average forward PE of 10.1x.

More direct competitors listed in the US and Japan trade at an average of 18.8x forward earnings.


Share Price Catalyst
• Events: a) Higher-than-expected revenue growth rates, b) better-than-expected cost management, and c) earlier-than-expected integration synergies with CEI.
• Timeline: 6+ months.

Full report here.


Share Prices

Counter NameLastChange
AEM Holdings4.500-0.120
Avi-Tech Electronics0.295-0.005
Broadway Ind0.146-0.004
China Sunsine0.4750.005
DISA0.003-0.001
Food Empire0.535-0.015
Fortress Minerals0.375-
Geo Energy Res0.395-
Golden Energy0.5000.005
GSS Energy0.0540.001
InnoTek0.4500.015
ISDN Holdings0.475-0.005
ISOTeam0.1060.005
IX Biopharma0.163-0.002
Jiutian Chemical0.090-0.001
KSH Holdings0.345-0.010
Leader Env0.056-0.005
Medtecs Intl0.180-0.001
Meta Health0.0310.001
Moya Asia0.060-
Nordic Group0.4300.005
Oxley Holdings0.175-0.005
REX International0.230-0.010
Riverstone0.7150.005
Sinostar PEC0.220-
Southern Alliance Mining0.670-
Straco Corp.0.390-
Sunpower Group0.380-0.005
The Trendlines0.096-
Totm Technologies0.123-0.001
UG Healthcare0.2150.005
Uni-Asia Group1.100-0.020
Wilmar Intl4.090-0.030
Yangzijiang Shipbldg0.935-0.010

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