AEM: Highest target price $4.05 (JP Morgan), lowest $3.00 (DBS)

JP Morgan has the highest target price of $4.05 for AEM Holdings following its 3Q results release. The stock closed today at $3.26.

JPMorgan tear11.23

° AEM provides solutions for back-end testing of the semiconductor manufacturing process. Aside from key customer Intel, its new customers are also top-tier semiconductor players.

Profit before tax (before exceptionals, especially a US$20 million legal settlement) for 9M2023 amounted to S$42.6 million (including exceptionals, pre-tax profit was S$10.1 million) compared to S$141 million in 9M2022.

JP Morgan said its target price is based on 10.5x P/E, which is the 5-year mean P/E of the stock.

This is down from 11x previously, considering the following:

• Slower-than-expected recovery and potentially mid-to-long term erosion of key customers’ test spend.

"We stay OW (overweight) as we should be near the end of the test equipment demand lull following the deep correction in the past one year, while mgmt has also guided for further program wins in the next 3-6 months, which may serve as a catalyst."
-- JP Morgan

Both factors are offset by ...

• AEM's increasingly successful diversification efforts which reduce single customer risk exposure.

It acquired four new customer acquisitions in the past couple of years but the ramp in their product launches has been further pushed out to late 2024.

Top AEM11.21

Here's our compilation of broker reports:

Research house	Call	Target price (S$)	Net profit forecast (S$‘m)
			2023	2024
CGS-CIMB	Add	3.76	8.6	65.4
Maybank KE	Buy	3.76	10	74
JP Morgan	Overweight	4.05	13	83
UOB KH	Buy	3.63	14	76
DBS	Hold	3.00	13.6	73.8
Citi	Buy	3.78
Average		3.66	11.8	74.4

DBS Research has the lowest target price of $3.00 based on a higher P/E multiple of 12.5 compared to JP Morgan's 10.5.

DBS, which expects a lower 2024 profit than JP Morgan, has positives about AEM's fundamentals to highlight:

• Reiterating its long-term positive view on AEM, it noted AEM's technological superiority in the systems-level test segment and unique Test 2.0 approach.

AEM has also been awarded three new patents in 3Q for its thermal capabilities, reinforcing its competitive advantage.

• The niche that AEM plays in has long-term secular drivers such as artificial intelligence, Internet of Things, and 5G.

See our post-3Q2023 report: AEM: 3Q was bad, FY23 will be bad. It's still a $1 billion company because ....

Counter Name	Last	Change
AEM Holdings	2.370	0.030
Best World	2.460	-
Boustead Singapore	0.945	-0.015
Broadway Ind	0.133	-
China Aviation Oil (S)	0.920	-0.005
China Sunsine	0.420	0.005
ComfortDelGro	1.480	-
Delfi Limited	0.895	-
Food Empire	1.260	-
Fortress Minerals	0.300	-0.005
Geo Energy Res	0.305	-0.005
Hong Leong Finance	2.500	-
Hongkong Land (USD)	3.140	0.020
InnoTek	0.550	0.030
ISDN Holdings	0.305	-0.005
ISOTeam	0.044	0.001
IX Biopharma	0.042	0.001
KSH Holdings	0.250	-
Leader Env	0.047	-0.004
Ley Choon	0.045	-
Marco Polo Marine	0.067	-
Mermaid Maritime	0.139	-0.001
Nordic Group	0.305	-0.005
Oxley Holdings	0.088	-0.001
REX International	0.133	-0.003
Riverstone	0.795	-0.020
Southern Alliance Mining	0.430	-
Straco Corp.	0.485	-0.025
Sunpower Group	0.210	0.005
The Trendlines	0.067	-
Totm Technologies	0.022	-
Uni-Asia Group	0.820	-0.005
Wilmar Intl	3.470	-0.030
Yangzijiang Shipbldg	1.740	-0.010

Counter Name

Last

Change

AEM Holdings

2.370

0.030

Best World

2.460

Boustead Singapore

0.945

-0.015

Broadway Ind