Hot stock: AEM nears 2-year low on news of job cuts at key customer Intel
Vivienne Tay
SHARES of mainboard-list AEM fell to a near two-year low following a news report that key customer Intel is planning a major reduction in headcount.
Separately, DBS Group Research has downgraded the counter to “hold” from “buy” and slashed its target price almost by half on earnings uncertainty as it expects prolonged weakness from Intel to impact AEM.
AEM, which provides advanced chip testing solutions, saw its counter tumble as much as 12.5 per cent or S$0.46 to reach a low of S$3.21 as at 11.14 am on Thursday (Oct 13). The last time the counter closed near this level was Nov 20, 2020. There were no married deals, according to ShareInvestor data.
By 11.37 am, AEM was down 11.7 per cent or S$0.43 to S$3.24, with 4.8 million shares changing hands.
On Wednesday, Bloomberg reported that Intel could lay off “thousands” in a bid to cut costs, citing people with knowledge of the situation. It could make the announcement as early as this month, around the same time as its Q3 earnings report on Oct 27, the news report stated.
AEM, which derives over 60 per cent of its group revenue from Intel, could ultimately be affected by any further weakness or drop in capital expenditures from the US-based chipmaker, DBS said in a report on Thursday.
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New customer wins from H1 2022 will likely not be enough to cushion weakness from Intel due to their relatively small size in terms of contributions. Furthermore, contributions from the new wins will only like come at the end of 2023 or early 2024, said DBS analyst Ling Lee Keng.
On top of downgrading its call to “hold” on earnings uncertainty, the research team also slashed its target price on AEM by 45.7 per cent to S$3.19 from S$5.88. The new target implies a potential downside of 0.6 per cent from the counter’s 11.37 am trading price on Thursday.
DBS also cut its revenue forecasts by 1.7 per cent for FY2022 and 19.9 per cent for FY2023 on a weaker outlook for Intel. Thus, its earnings forecast has fallen by 1.6 per cent for FY2022 and 19.7 per cent for FY2023.
On the sector as a whole, DBS said that demand for electronic devices has been “relatively weak” in recent months. It continues to expect a drop in shipment for various consumer devices in 2022, with the personal computer (PC) segment performing the weakest.
The research team only expects the PC, mobile and tablet segments to only see a recovery in 2024, Ling noted.
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