Brokers’ take: Maybank disappointed in AEM’s execution; downgrades to ‘hold’ with lower target at S$3.26
Mia Pei
MAYBANK Securities has downgraded AEM to “hold” from “buy”, while lowering its price target to S$3.26 from S$3.76 on Wednesday (Jan 17).
The semiconductor equipment maker disclosed on Sunday that a human error in data entry for transactions caused a 5 to 7 per cent shortfall in its last reported inventories. The brokerage is disappointed by AEM’s internal processes that led to “such a basic error”.
“While AEM has proven itself over the years, the inventory shortfall mistake has impacted our confidence in management’s execution, and while we believe the worst should be over, we now only expect a more substantial recovery in FY2025,” said Maybank analyst Jarick Seet.
He expects the inventory shortfall will lead to an impairment of about S$18 million to S$25 million for FY2023’s results, which is likely to result in an overall loss. He slashed the earnings forecast for FY2023 to a negative S$12.7 million, from a positive S$9.6 million.
Amid a muted recovery for the manufacturer, he cut the earnings forecasts for FY2024 by 33.6 per cent, and by 21.9 per cent for FY2025.
“AEM expects a ramp-up by its new customers and existing customers in late 2024 instead of H1 2024, as protracted recovery in tester utilisation rates is now expected,” said Seet, adding that most customers have reduced the capital expenditure for testing on weaker end-demand across the industry.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
On Sunday, AEM said the shortfall in its last reported S$358.6 million inventory figure would have a negative impact on its FY2023 profitability. Citi Research estimated the loss to be between S$14 million and S$20 million on a post-tax basis, representing 46 to 65 per cent of its current FY2023 profit forecasts.
While Citi has maintained its “buy” call with a price target of S$3.78, DBS Group Research has kept its “hold” call with a target of S$3.
DBS expects AEM to sink deeper into the red with more than 2 per cent trimmed off revenue estimates, if the company is unable to fulfil any orders due to the shortfall in its inventory. The research house, however, highlighted a long-term positive view on the semiconductor player’s superiority in system level test.
SEE ALSO
Shares of AEM have been under pressure since Monday, closing 8.8 per cent lower. As at 11.48 am on Wednesday, the counter was trading down 1.9 per cent or S$0.06 at S$3.11.
Copyright SPH Media. All rights reserved.
