Excerpts from Maybank KE report

Analyst: Gene Lih Lai, CFA

Buy the dip

Capturing upside opportunities; TP +19%; BUY
AEM raised FY20 revenue guidance to SGD480-500m from SGD460-480m.


Share price: 


We raise FY20-22E EPS by 5-7% to account for this.

We now value AEM at 14x FY21E P/E, from ROE-g/COE-g derived 5x blended FY20-21E P/B, to better account for:

i) upside from system-level test’s structural growth prospects from new customers/ stronger-than-expected order momentum; and

ii) potential for valuation gap to narrow against global peers due to increasing international investor participation. BUY.

Continued relevance with key customer
Takeaways from Intel’s Architecture Day include that Intel will continue to decouple design from process technology, as well as focus on advanced packaging technologies to drive leadership products.

We believe this is favourable to AEM as heterogeneously packaged chips come with testing challenges at the wafer level that can be overcome by SLT at the packaged level to ensure product reliability.

Exciting end-markets beckon
Automotive and edge computing are growth markets where system level test (SLT) is advantageous, but we believe AEM has little to no penetration yet.

Automotive chips are challenging to test given requirements for zero defect and high thermal reliability.

Lai Gene Lih"Re-rating opportunities from global investors. With continued earnings growth, we believe AEM may eventually achieve USD1b in market cap and more. This may unlock the opportunity for increased global investor participation, along with more global perspectives of AEM’s growth prospects. We believe this may in turn spark a re-rating for AEM’s P/E multiples to narrow the gap compared to global peers."

-- Gene Lih Lai, CFA

AEM presented at the SEMI SEA 2020 conference on how its asynchronous, modular and massively parallel approach to SLT can tackle these challenges in a cost effective way.

We walked away with a greater appreciation for AEM’s AMPS solution, and believe exciting end-markets beckon for AEM.

Potential for valuation rerating
We believe 14x FY21E is appropriate to value AEM to account for:

i) its market-leading SLT solution; and ii) attractive SLT growth prospects, but remains at a discount to global peers at 17x, to factor in customer concentration risks.

We now favour using P/E over ROE-g/COE-g derived P/B as this overcomes:

i) under-reflected ROE generation due to strong cash build;

ii) unquantifiable ROEs from new and potential customers; and

iii) potential re-rating sparked by an incrementally global investor base if earnings growth paves the way for USD1b market cap and higher.

Full report here. 

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