JP 2.24

After falling 35% since the start of the year, is AEM Holdings looking to be a buy anytime soon?

AEM has been beset by a plunge from S$127 million net profit in 2022 to a S$1.24 million net loss for 2023, as semiconductor demand trended down, resulting in lower testing needs of chip producers.

That, along with one-off issues involving a legal case and inventory discrepancy, added up to be a perfect storm.

• Revenue tumbled from an all-time high of S$870 million in 2022 to S$481 million in 2023.

• That fall together with a legal settlement (S$26.7 million) and inventory adjustment (S$21.1 million) resulted in a profit before tax of S$7.6 million.

Excluding the one-off charges, the PBT was S$38.3 million.

JP Morgan suggests that there is no need to rush to accumulate the stock -- but it has an overweight rating on an expected recovery as 2024 progresses leading to a bumper year 2025.

Its target price: $2.95 (versus current trading price of $2.29)


Leadership 3.24
"The customer engagements that we previously announced remain strong and with the backdrop of explosive growth in AI, interest in AEM's Test 2.0 solutions has never been stronger. As such the management team continues to invest in developing our 
technology and product platforms. These efforts have resulted in strengthening our patent portfolio with nine new patents being awarded in 2023."

-- CEO Chandran Nair



Aside from a nascent recovery in the semiconductor cycle, 2024 is expected to see some support from key customer Intel’s test handler purchase -- but the bulk of its non-cancellable S$280mn program is to be fulfilled in 2025.

° AEM provides solutions for back-end testing of the semiconductor manufacturing process. Aside from key customer Intel, its 5 new customers are also top-tier semiconductor players.

And only in 2025 are AEM's new customers’ ramps expected to kick in.

AEM has just revealed a 5th new customer win (a hyperscaler) following 
4 wins in the past 2 years (2 xPU, 1 memory and 1 system player).

Like JP Morgan, DBS Research also is not seeing any strong catalysts for AEM in the near term.  

Hence it maintained its "HOLD" rating and lowered its target price to S$2.26 (vs $3.00 previously).


DBS quote2.24

On the positive side, DBS, like other research houses, continues to see that AEM has technology leadership.

In fact, AEM was awarded 9 new patents in 2023.

AEM will ride on long-term demand for semiconductor testing supported by increasing device complexity, higher test coverage and power requirements, and increasing test times.

UOB Kay Hian concurred: "AEM’s competencies of composable solutions featuring highly parallel testing, exceptional active thermal control, and SLT+, have placed it in an enviable position to capitalise on the opportunities to address the test demand for newly-developed AI devices."

Research
house

Call

Target
price
 (S$)

Net profit forecast
(S$‘m)

 

2024

2025

CGS-CIMB

Hold

2.32

33

75

Maybank KE

Hold

2.13

31

76

JP Morgan

OW

2.95

45

95

UOB KH

Hold

1.94

35

43

DBS

Hold

2.26

30.4

82.4

Citi

Buy

3.78

97

112

Average

 2.56

45

81

But UOB KH, somewhat inexplicably, slashed its earnings forecast for 2024 and 2025 dramatically to be among the lowest levels of those of the 6 research houses covering the stock (see table).

Accordingly, its target price is also the lowest: $1.94. 

Maybank Kim Eng's report said: "While we believe the worst should be over, we think that recovery should only be more substantial in FY25E. As a result, we maintain HOLD for the time being while awaiting for clearer signs of substantial order recovery."


For more on AEM's 2023 results and inventory investigation results, see its press release here

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