Singapore's hottest stock AEM is set to continue winning streak

[SINGAPORE] A top-performing Intel supplier in Singapore is set to continue its winning streak in the stock market as it benefits from emerging trends in the semiconductor industry.

AEM Holdings - a chip-testing equipment provider that counts the US tech giant as its main customer - has surged 53 per cent this year to become the top performer in the 107-member FTSE ST All-Share Index, the broadest measure for Singapore stocks. All four analysts covering the stock have an equivalent of a "buy" rating on it, and on average expect it to gain about 19 per cent over the next 12 months, according to data compiled by Bloomberg.

This puts it in the running to be the best performer on the index for four of the past five years, as Intel further expands into data centres, autonomous vehicles and next-generation technology. And as pandemic-induced remote working arrangements become more commonplace, demand for chips is set to remain high. Gartner estimates the global semiconductor industry to log more than US$400 billion in revenues this year, just down 0.9 per cent from 2019.

"We expect the share price to trend toward a new record high" with positive industry developments and data centre demand, said Lee Keng Ling, an analyst at DBS Bank. She upgraded the stock to a "buy" rating in June. The firm currently has return-on-equity at more than 60 per cent, in stark contrast to the median 9 per cent of its peers, Bloomberg-compiled data show.

Intel typically uses AEM's machines for its chips for computers, laptops and servers, said Kenny Tan, an analyst at KGI Securities (Singapore). In March, Intel said that it is delivering more than 90 per cent of its products on time despite the pandemic. That has supported AEM's revenue guidance of between S$430 million and S$445 million for 2020 - an all-time high.

"More AI, more 5G applications, more telecommuting, more cloud services. Overall the macros look positive to us," said AEM chairman Loke Wai San in an interview. AEM's shares rose S$0.09 or 3 per cent to S$3.11 as at 11.12am on Friday.

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Concentration risk, however, remains a concern for a company that relies on Intel for more than 90 per cent of its revenue. The US technology giant is facing its own set of troubles, with Apple planning to build in-house processors for Mac and competition increasing for chip technology from the likes of Taiwan Semiconductor Manufacturing.

Looking ahead, the company is scanning markets globally for small acquisition targets that have annual sales of less than US$10-US$20 million. For now, "the majority of AEM's market share gain will be tagged to Intel's growth", Mr Tan said.

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