Brokers’ take: Analysts positive on AEM’s role in testing space; upgrade to ‘buy’
Mia Pei
ANALYSTS continue to be positive on AEM Holdings , as they believe the worst is over for the semiconductor equipment maker, with FY2023 results bottoming out and negative news priced in.
In separate reports, UOB Kay Hian (UOBKH) and Maybank Securities upgraded AEM to “buy”, joining Citi Research, which maintained “buy” on the counter.
While UOBKH raised its target price on the counter, both Maybank and Citi cut their targets on AEM after adjusting their earnings estimates to account for lower margins and revenue.
In a report on Tuesday (Aug 15), UOBKH increased its target price on AEM to S$3.65 from S$2.87, implying a potential upside of 11.6 per cent from the counter’s last trading price of S$3.27 as at 11.37 am. Shares of AEM were trading 5.1 per cent or S$0.16 higher at the time.
This new target price is 12.8 times the research team’s estimates for FY2024 earnings, to account for potential recovery in the semiconductor industry in 2024, as well as improving earnings supported by new customer contributions.
UOBKH analyst John Cheong also noted that the company’s recent share performance has already priced in the downside impact of the recent arbitration settlement with Advantest as well as the 5 per cent reduction in revenue guidance for FY2023.
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To factor in the reduced revenue guidance, UOBKH reduced its FY2023 revenue forecast by 16 per cent to S$487 million.
The research team also slashed its FY2023 earnings estimates by 99 per cent to S$1 million after accounting for the S$27 million arbitration settlement cost in Q3. Forecasts for FY2024 and FY2025 are unchanged, Cheong added.
On Monday, Citi lowered its FY2023 earnings per share (EPS) forecast by 67 per cent, and cut EPS forecasts for FY2024 and FY2025 by 22 per cent each.
The research team has cut its price target for AEM to S$3.78 from S$4.87, which implies a potential upside of 15.6 per cent.
Meanwhile, Maybank trimmed its target price to S$3.77 from S$3.90, which is pegged to an estimated FY2024 price-to-earnings multiple of 12 times.
The reduced target came after the research house revised its net profit after tax (NPAT) for FY2023 down by 82 per cent. NPAT forecast for FY2024 was also lowered by 3 per cent to account for lower margins and revenue, said Maybank analyst Jarick Seet.
Despite the target price cuts, Citi and Maybank remain optimistic over AEM’s recovery and believe the company is well-positioned to capture demand for semiconductor testing solutions.
“Our positive view of AEM continues to be underpinned by the significant capacity expansion of its key customer in Penang, with production targeted for early-2024,” said Citi analyst Jame Osman.
Citi’s research team also expects a ramp-up in contributions from new customers, and believes that structural industry demand for systems-level test and back-end testing remain intact.
Maybank analyst Seet noted that delays in current customer device release schedules also point to a rebound in FY2024.
“We are bullish on the long-term key role that AEM plays in the testing space,” Seet added.
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