Brokers' take: DBS raises target price for AEM to S$6.04 on higher revenue estimates

DBS Group Research raised its target price for semiconductor equipment maker AEM Holdings AWX to S$6.04 from S$4.98 previously, as it expects to see an upside in the company's revenue due to higher spending from its key customer and additional revenue streams from new customers.

In a research note on Thursday (Nov 25), analysts Chung Wei Le and Ling Lee Keng maintained "buy" on the stock, noting that the mainboard-listed company's share price has risen quickly, and has been consolidating near their previous target price of S$4.98 since it released its Q3 results on Nov 10.

AEM posted a 4.3 per cent fall in net profit to S$23.3 million for its third quarter ended Sep 30, from S$24.3 million a year ago.

But it also reported a higher sequential quarter-on-quarter revenue in Q3 FY2021 of S$146.2 million from S$112 million, on the back of ramped-up volume for its next-generation system level testing handlers and peripheral tools.

The analysts raised their estimates for AEM's earnings by 11 per cent for FY2022 and 16 per cent for FY2023 on expected higher spending by key customer, semiconductor manufacturer Intel, and additional revenue streams from new customers.

Noting that Intel has projected a capital expenditure of US$25 billion to US$28 billion in 2022 with potential for further growth in subsequent years, the analysts are optimistic that this will translate into higher revenues for AEM in FY2022 and FY2023.

The research team is raising its revenue estimates for AEM by 9 per cent for both FY2022 and FY2023.

AEM has also made "significant progress" on its technical engagements with 10 out of the top 20 semiconductor companies, said the analysts, adding that it expects to report meaningful revenue contributions from these tie-ups from the second half of FY2022.

In addition, DBS highlighted that AEM has been selected as the system level testing solution provider for one of the industry's leading memory integrated device manufacturers.

Taken together, the research team estimated that these engagements will contribute 5 to 10 per cent of AEM's FY2022 revenue.

Therefore, to reflect the semiconductor industry's strong momentum and positive developments, the analysts have raised their target price to S$6.04. This comes as they raised their price-to-earnings estimates for FY2022, which have been pegged at 15 times, up from 13.7 times previously.

Shares of AEM were trading S$0.11 or 2.2 per cent higher at S$5.06 as at the midday break on Nov 25.