Broker's take: DBS downgrades AEM Holdings to 'hold' on limited upside, economic uncertainty

DBS Group Research has downgraded its call on AEM Holdings to "hold" from "buy", citing limited upside on its higher target price of S$2.47, up from S$2.29 previously.

As at 9.49am on Thursday, the counter was trading at S$2.50, up S$0.13 or 5.5 per cent.

AEM Holdings, which provides advanced chip testing solutions, reported its first-quarter results on Tuesday. Net profit more than quintupled to S$36.1 million for the three months ended March 31, up from S$6.6 million a year ago, while revenue more than doubled to S$146.8 million.

The increase in net profit was attributable to "substantially higher sales from its key customer Intel" as well as higher margins, DBS noted.

Overall, DBS analysts are positive on AEM, based on several favourable developments in the industry. This includes cloud computing driving demand for server chips and notebooks, as well as Intel's intention to add 20 per cent to its capacity in fiscal year 2020.

Nonetheless, the research team is downgrading its recommendation on the counter due to limited upside and the uncertain economic backdrop.

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"AEM's share price has risen by 73 per cent from its trough of S$1.37 in mid-March 2020... We are more cautious on the outlook given the uncertainty surrounding the Covid-19 pandemic," the DBS analysts said.