Excerpts from CGS-CIMB report
Analysts: William Tng, CFA & Izabella Tan
|Patience is a virtue
■ We believe that the market has priced in a weaker FY23F since AEM’s FY22 results announcement.
■ We reiterate our Add call on FY24F earnings recovery.
|Navigating a difficult 1H23F
AEM’s share price has declined 18.3% from S$3.38 pre-FY22 results announcement to S$2.76 on 1 March 2023.
Legal / pro fees down
“There was an increase of S$15.9m in legal and professional fees arising from arbitration involving its US entities (announced on 24 Feb 2022) and IT hardening initiatives (IT security breach announced on 5 Sep 2022). We think that legal and professional fees should decline significantly in FY23F.”
The shares are currently trading at 7.35x our FY24F EPS forecast, 7.0% below its 6-year average of 7.9x.
On 24 Feb 2023, AEM provided revenue guidance of S$500m in FY23F. In FY22, 1H22 accounted for 62%/65% of full-year revenue/net profit.
Hence, AEM will have a high base comparison effect in a 1H23F semicon downturn environment.
AEM reported revenue/net profit of S$262m/S$41m in 1Q22 and S$540m/S$183m in 1H22.
|Keeping an eye on costs in a downturn
Given the industry slowdown in FY23F, we believe that management will oversee its costs diligently.
We also note that in FY22, there was an increase of S$15.9m in legal and professional fees arising from arbitration involving its US entities (announced on 24 Feb 2022) and IT hardening initiatives (IT security breach announced on 5 Sep 2022).
We think that legal and professional fees should decline significantly in FY23F.
|Possible recovery from 2H23F onwards
Management said that its S$500m revenue guidance for FY23F may be revised as second half visibility becomes clearer.
“We think that the share price re-rating could gather momentum from 2H23F onwards as the semicon industry recovers.”
Management also believes that the semicon industry’s revenue could possibly rebound between 2H23F and early 2024 and will continue its growth trajectory to reach US$1tr by the early 2030s driven by high performance computing, artificial intelligence, electrification of vehicles, and 5G communications.
In its customer diversification efforts, management has guided that it has won programmes in high performance compute artificial intelligence, application processors, and memory.
Management thinks that these customers’ revenue could possibly double in FY23F versus FY22 and is optimistic that there could be secular growth opportunities from these customers in FY24F and beyond.
We reiterate our Add call on potential FY24F earnings recovery (we estimate FY23F EPS could drop by 29.3% yoy).
Our TP is based on 9.5x FY24F P/E, 0.5 s.d. above its 6-year average given its sole supplier status with its major customer.
Re-rating catalysts include stronger-than-expected orders from its major customer and earlier-than-expected success in securing orders from other potential customers.
Downside risks are delivery delays and the loss of the sole supplier status for its major customer, which would negatively affect AEM’s profitability, in our view.
Full report here