UOB Kay Hian (UOBKH) analyst John Cheong is keeping his “sell” call on AEM Holdings AWX with a raised target price of $1.10 from $1.04 previously. Conversely, DBS Group Research’s Amanda Tan and Ling Lee Keng are keeping their “buy” call at a raised target price of $1.72 from $1.67 previously.
For the 3QFY2024 ended September, AEM reported a loss of $917,000, and a loss of around $100,000 for the 9MFY2024.
Cheong writes: “Earnings appear to be a miss versus our FY2024 estimate of $10 million. 3QFY2024 revenue of $74 million was largely in-line, with 9MFY2024 revenue of $248 meeting 69% of our full-year estimate.”
Meanwhile, the company’s core profit before tax (PBT) margin of 1.2% for the 3QFY2024 did not meet his expectation due to a lower revenue base.
Despite a 6.5% q-o-q reduction in revenue compared with 2QFY2024, AEM managed to achieve a 3.5% q-o-q growth in core PBT, due to a favourable product mix and its operational agility to align the internal cost structure with external demand.
The company has also raised its 2HFY2024 revenue guidance to $190 million to $210 million, up from $160 million to $180 million, due to its key customer bringing forward systems’ order from FY2025 into 4QFY2024 under the noncancellable, long-dated purchase order programme for inventory management purposes.
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
Cheong notes that this indicates FY2024 revenue of $364 million to $384 million, which is slightly above his FY2024 estimate of $360 million.
AEM has set forth a few mid-term strategies to achieve revenue growth from customer and market segment diversification, to continue to invest and retain test 2.0 leadership, to achieve operational excellence and lastly, to cultivate talent and culture to consistently deliver results.
Industry-wide, the semiconductor space continues to be in a tale of two economies, with artificial intelligence (AI) and high-performance compute continuing its positive momentum, while other segments, such as smartphones, automotive, traditional compute and industrials face headwinds characterised by a slower-than-expected recovery.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
With this, AEM continues to bring to market products from its intensive research and development (R&D) efforts over the past several years. This includes its latest AMPS platform, which AEM notes is on-track to be online at the customer’s site in late FY2024.
To seize the increasing opportunities associated with AI and enhance its ability to deliver long-term growth, AEM remains steadfast in investing in differentiated test capabilities tailored for AI or high-performance computing (HPC) applications, including thermal management, application specific test instruments, and high-throughput automation.
“AEM is committed to reaching its mid-term targets through the continued growth and progress in customer deployments of its new product platforms and expansion into new test markets,” writes Cheong.
The analyst has therefore adjusted his FY2024, FY2025 and FY2026 earnings estimates by 1%, 2% less and 1% respectively after changing our revenue estimates by 7%, 7% less and 6% lower to factor in the order pull-in from AEM’s major customer, which will result in better 4QFY2024 but weaker FY2025 revenue.
He adds: “We also tweak our gross margin estimate to account for slightly better improvement in operating efficiency because of more proactive cost management initiatives.”
Share price catalysts noted by Cheong include positive surprises in future revenue guidance and AEM’s winning of more new customers.
Meanwhile, DBS’s Tan and Ling believe that the company is near an inflexion point and foresee its customer diversification strategy yielding more significant returns starting from 1QFY2025 onwards.
For more stories about where money flows, click here for Capital Section
They write: “The $20 million order which was initially due for recognition in 4QFY2024 will now be booked in FY2025, while there has been a pull forward of around $30 million in revenue from Intel into 4QFY2024 from FY2025.”
“Barring further exceptionals, we believe that we are past the earnings trough as Intel’s contributions remain supported by the non-cancellable purchase orders, while new customer contributions gain momentum,” add Tan and Ling.
The DBS analysts’ target price is pegged to 20 times FY2025 earnings, which is at 0.5 standard deviations (s.d.) below the historical mean.
“The share price is up 16% post our upgrade to ‘buy’ as at Nov 7 and we see further room for upside,” conclude Tan and Ling.
Key risks noted by the DBS analysts include AEM’s lower ramp of new customers and weakness in its key customer.
Shares in AEM closed flat at $1.39 on Nov 15.
