Excerpts from Maybank Kim Eng's report

Analysts: Neel Sinha & Lai Gene Lih

 Game-changing breakthrough 
LokeWaiSan1 2.2017Loke Wai San, non-executive chairman of AEM Holdings. Nextinsight file photoAEM specialises in back-end semi-con equipment and components manufacturing. Notably, it has spent the past four years restructuring the company and co-developing the latest test handler for Customer I’s (USD170b market cap chipmaker) High Density Modular Test (HDMT) platform.

HDMT has provided a significant edge to Customer I in terms of reducing testing costs, without sacrificing throughput and accuracy. Management is optimistic towards short to medium term prospects as it embarks on a multi-year roll-out of this test-handler.

Mission critical partner
AEM believes that few or none of current test handlers can rival its latest specs. This handler is an integral part of the HDMT, which has helped Customer I achieve up to double their intended cost savings.

Comparing PE …







Valuation and risks
AEM is currently trading at 7.6x FY17 P/E, based on a single broker estimate, which is currently forecasting FY17 EPS growth of about 4x. In Singapore, the company with the most comparable business model is UMS, which is trading at 10.2x forward P/E. That being said, UMS’ key client AMAT serves a multitude of semi-con manufacturers, while AEM exclusively serves the back-end testing equipment needs for a single chipmaker.

Globally, the closest peer is Cohu, which also manufactures test handlers. Global peers are trading at 14.5x forward P/E for 63% FY17 earnings growth.

Management believes that with its i) engineering capabilities in fluid and thermo dynamics, ii) adaptability and keen understanding of Customer I’s stringent requirements, and iii) dedicated on-site support, AEM will continue playing a strategic role in Customer I’s growth trajectory.

AEM is the sole-supplier for HDMT handlers, and management believes it has a 3-4 year lead time before a competing technology can be developed.

Growth outlook
AEM aims to replace a substantial portion of Customer I’s test handlers over the next three years. Looking ahead, profitability will be driven by higher-margin consumables sales. AEM estimates the total lifetime value for the test handlers is 20:80 split between equipment and consumables.

AEM is also actively seeking to acquire adjacent companies in the value chain (e.g. testers for specialised chips), and/or new technologies in other industries. Management is guiding for FY17 revenue of SGD200m and EBIT of SGD24m. Orders for FY17 delivery was SGD198m as at Jul-17.

Full report here. 

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