Brokers’ take: CGS-CIMB upgrades AEM, Grand Venture to ‘add’ on industry optimism

CGS-CIMB upgraded its calls on technology plays AEM and Grand Venture Technology to “add” as it anticipates a semiconductor industry recovery in the upcoming financial years.  

Both counters were previously rated “reduce” by the research house. They have also been given higher target prices as CGS-CIMB rolled over its valuation base year for the two companies to FY2025. 

CGS-CIMB’s new target price of S$4.11 for AEM, compared with S$2.92 previously, is based on a higher price-to-earnings (PE) multiple of 11.3 times. This is in line with AEM’s five-year average, and higher than its earlier 10.2 times multiple, which its previous price target was based on.

Though the research house expects AEM to report lower revenue and a potential headline net loss of S$20.4 million for Q3 FY2023, it believes customer demand should return in FY2024 to FY2025.

“AEM has taken the opportunity arising from the current lull in demand from its customers to improve operating efficiencies and further reduce its cost structure,” noted analyst William Tng in a report on Wednesday (Oct 18).

Tng also foresees the group’s key customer, Intel, potentially placing new orders for its upcoming semiconductor facilities with AEM in FY2024.

“In our view, AEM should not require any further capital expenditure over FY2024 to FY2025 as the new 365,000 square-foot plant in Penang is sufficient to meet customers’ needs.”

Grand Venture’s target price was also raised to S$0.62 from S$0.51 as CGS-CIMB rolled over its estimates to FY2025, based on an average PE multiple of 11.6 times.

It was at this average multiple that the stock was trading during its last net profit upcycle from FY2019 to FY2021, said Tng. He foresees a potential re-rating in valuation as its net profit growth resumes for Grand Venture over FY2024 to FY2025.

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“We think FY2024 revenue could grow 31.1 per cent year on year to S$141.6 million as the semiconductor industry stages a recovery and Grand Venture is able to secure orders from its new front-end semiconductor customers.

“Orders from these customers could gather pace into FY2025, leading to a 10.2 per cent year-on-year revenue growth.”

As at 10.30 am on Thursday, shares of AEM were trading S$0.04 or 1.1 per cent higher at S$3.56, while Grand Venture was flat at S$0.515.