Coming out of 2022, a year of record profit, AEM Holdings stock has been punished for a less-than-optimistic outlook for 2023. DBS, UOB KH and Maybank KE have dismal target prices of $2 and $2.78. $2.66, respectively. However, CGS-CIMB maintained its $3.86 target as it looked to AEM's recovery in 2H2023 and beyond. This aligns with what AEM's CEO, Chandran Nair, said at yesterday's results briefing: 
Below are excerpts from CGS-CIMB report
Analysts: William Tng, CFA & Izabella Tan
| Looking forward to FY24F ■ FY22 revenue of S$870.5m and net profit of S$126.8m were in line with our and Bloomberg consensus full-year expectations. ■ AEM believes that global semiconductor revenue could still reach US$1tr by the early-2030s. ■ Reiterate Add with a TP of S$3.86. Final dividend was lowered to 3.6 Scts (FY21: 5.0 Scts). |
| Inevitable FY23F slowdown post a record FY22 |
FY22 revenue of S$870.5m (+53.9% yoy) was in line with our/Bloomberg consensus expectations, at 102%/104% of full-year expectations, and exceeded AEM’s own FY22 revenue guidance of S$820m-850m.
| New customers |
| "AEM thinks that in FY23F, revenue contribution from three new customers could double from that achieved in FY22." |
Profit before tax margin decreased to 18.2% in FY22 vs.19.7% in FY21 due to increased cost pressure from supply chain challenges and product mix.
FY22 net profit of S$126.8m (+37.9% yoy) was in line with our/Bloomberg consensus expectations, at 98%/99% of full-year forecasts.
There was a S$2.0m foreign exchange loss in FY22 due to the decline in the US$ versus the S$, which we had previously factored into our full-year forecasts.
AEM also slipped into a net debt position with a net gearing ratio of 3.1%, vs. a net cash position in 1H22.
| Initial FY23F revenue guidance of S$500m, cautious on FY23F |
AEM cautioned for a weaker FY23F given the global slowdown, rising interest rates, and weaker consumer demand. Initial FY23F revenue guidance of S$500m is 11% above the upper end of our previous S$350m-450m forecast.
AEM thinks that in FY23F, revenue contribution from three new customers could double from that achieved in FY22.
The company is also hopeful that FY24F could see higher production demand from these customers.
| We see a semicon recovery in FY24F after a decline in FY23F |
We reduce our FY23F revenue forecast by 10.5% (on concerns over the potential slowdown in FY23F), leading to a 19.3% decline in our EPS forecast.
We think AEM will benefit from the semiconductor industry recovery in FY24F and hence, maintain our FY24F net profit forecast though EPS increases by 0.1% as the number of shares declined after AEM’s share buybacks in FY22.
 William Tng, CFA.We reiterate Add on potential FY24F earnings recovery (FY23F EPS could drop 29.3% yoy). Our TP is still based on 9.5x P/E, 0.5 s.d. above its 6-year average given its sole supplier status with its major customer. Re-rating catalysts include stronger-than-expected orders from its major customer and earlier-than-expected success in securing orders from other potential customers. |
Downside risks are delivery delays and the loss of its sole supplier status for its major customer, which would negatively affect AEM’s profitability, in our view.
Full report here.
