Brokers’ take: DBS upgrades AEM to ‘hold’ as chip market bottoms
Bryan Kow
DBS Group Research has upgraded its call on mainboard-listed AEM Holdings to “hold” from “sell”, in anticipation of a chip market rebound in 2024.
The brokerage also raised the target price of AEM’s shares to S$3.35. This is pegged to 10 times the company’s forecast FY2024 earnings and is close to its historical mean.
Analyst Lee Keng Ling said on Tuesday (May 2) that the near term remains “fundamentally challenging” for the semiconductor solutions provider, as headwinds in the industry persist. Moreover, Intel, a key customer of AEM, posted lacklustre results for the first quarter of 2023 amid a data centre and personal computer (PC) slump.
However, Lee noted that AEM’s inventories for Q1 have depleted significantly, which suggests that it is near the trough.
Full-year guidance by chip industry bellwethers has also affirmed a rebound from the second half of this year.
Furthermore, Intel’s Q2 revenue guidance indicates that the PC market is bottoming, although there could be some softness in server demand.
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“With the key customer prospects improving and increasing visibility on H2 2023, we now believe that AEM is likely to make upward revisions to its conservative guidance,” said Lee.
The brokerage has revised its forecast earnings estimates for AEM upwards by 30 per cent for FY2023 as the company’s inventories and visibility improve.
Beyond optimism of a recovering chip market, Lee noted that AEM is currently one generation ahead of its competitors in providing system-level test (SLT) solutions, and believes it is “well-positioned to ride on the growing SLT market”.
He added that as new technology such as artificial intelligence drives growth in test spend, it would lead to greater demand for AEM’s offerings in the long term.
Shares of AEM were trading up S$0.20 or 5.9 per cent at S$3.58 as at 2.11pm on Tuesday.
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