| With AEM Holdings' 3Q2024 results now in the rear mirror, what have analysts got to say? To be sure, they -- and investors -- have varying perspectives depending on how they see AEM being shaped by industry trends, new customers' orders, and AEM's abilities to innovate. There are potential risks and opportunities and uncertainties facing the Singapore-listed company, an innovator of systems that test semiconductor chips. We know of 3 analyst reports, with DBS' standing out for its forward-looking optimism of AEM’s potential.
DBS analysts maintain their BUY rating based on expectations of an earnings turnaround starting in FY25, supported by a growing traction with new customers.  |
AEM raised its 2H24 revenue guidance to S$190m-210m, up from S$160m-180m, as key customer Intel brings forward some orders from 2025.
However, AEM's shipment of a new customer's S$20+ million order is now deferred from 4Q2024 to 1Q2025.
Given the S$30 m hike in revenue guidance, it is likely that Intel's forward order into 4Q2024 amounted to S$50 million or so.
Given that backdrop, here are some comparisons of the analyst reports:
|
Aspect |
DBS Report |
Maybank Report |
UOB Kay Hian Report |
|
Outlook |
Optimistic about long-term growth; earnings recovery expected by FY25 despite short-term challenges |
Cautious; sees recovery but warns that valuations are ahead of earnings growth |
Mixed; acknowledges order pull-ins and is concerned about uncertainties in the semiconductor industry |
|
Earnings Forecast |
Expects strong earnings growth in FY25 (+147.6%) and beyond |
Cuts FY25/26 earnings estimates by ~11%, citing lower profitability and high valuations |
Raises revenue estimates for 2024 but remains cautious about weaker revenue in 2025 due to Intel's order pull-ins |
|
So how? |
BUY with TP of $1.72 based on long-term growth potential |
SELL with TP of $1.10 due to high valuations and slow recovery prospects |
SELL with TP of $1.10 due to mixed outlook and industry uncertainties |
| DBS Bank Report |
Forward-Looking Viewpoint
DBS is relatively upbeat on AEM Holdings, emphasizing the company's technological superiority in system-level testing (SLT) and its strong position to benefit from industry megatrends like AI, 5G, and IoT.
DBS expects AEM to ride the wave of increasing complexity in chips and higher test coverage requirements, which should drive demand for its SLT solutions.
| "We believe that AEM is near an inflexion point and foresee its customer diversification strategy yielding more significant returns starting from 1Q25 onwards." -- DBS |
The report highlights that AEM is at an inflection point with customer diversification expected to yield significant returns starting from 1Q25.
FY25 will be driven by new business revenue more than doubling and Intel's contributions being supported by non-cancellable purchase orders (POs).
The report also notes that AEM's long-term growth will be supported by the semiconductor industry's projected expansion into a trillion-dollar market by 2030.
DBS reiterates its BUY recommendation with a higher target price of SGD1.72 (up from SGD1.67), pegged to 20x FY25F earnings.
This reflects confidence in AEM's ability to capitalize on new customer traction and strong sales potential driven by long-dated POs.
DBS sees further upside potential, as the share price has already risen by 16% since its upgrade to BUY on 7 Nov 2024.
The valuation remains attractive at 16.5x revised FY25 estimates, still below historical averages.
| Maybank Kim Eng Report |
Cautious Stance
Maybank takes a cautious stance, maintaining a SELL recommendation with a lowered target price of SGD1.10 (down from SGD1.12).
| "Valuations remain high due to low profitability, and we cut our FY25/26E PATMI estimates by 10.9% and 10.5%." -- Maybank Kim Eng |
The report acknowledges that while AEM's new customer contributions are expected to exceed those of its key customer (Intel) in FY25, the drop in Intel's orders (by 30-50%) will weigh heavily on overall revenue growth.
Maybank believes that AEM is still in a transition phase, with the full ramp-up of new customer orders being uncertain.
Maybank argues that current valuations are running ahead of expected earnings growth.
The report forecasts lower profitability for FY25 and FY26 and cuts its PATMI estimates by around 11%, citing a target price of $1.10 based on an unchanged 15x blended FY25/26E P/E..
"Maintain SELL as we think there may be further downside ahead."
| UOB Kay Hian Report |
Concerns about Intel
UOB Kay Hian also maintains a SELL recommendation with a target price of SGD1.10.
| "AEM reiterated that the semiconductor industry continues its tale of two economies – with AI and high-performance compute continuing its positive momentum, while other segments face headwinds." -- UOB Kay Hian |
Similar to Maybank, it has concerns about AEM’s reliance on Intel and the uncertainty surrounding revenue growth from new customers.
The report notes that while AEM raised its 2H24 revenue guidance due to order pull-ins from Intel, this will likely result in weaker revenues for FY25 as these orders were originally slated for next year.
The report emphasizes that despite some positive developments in AI-related products, AEM's outlook remains mixed due to ongoing headwinds in segments like smartphones and automotive, which are experiencing slower-than-expected recoveries.
» UOB's report is here.
» Maybank's is here.
» DBS's is here.
