William Tng of CGS-CIMB has downgraded his call on AEM Holdings, from "add" to "reduce", as he expects the company to reduce its FY2023 revenue guidance when the company reports its 1HFY2023 earnings on Aug 11.
"While we are cognisant of the positive long-term demand for semiconductors, we fear that the recovery in FY24F may be slow," writes Tng in his Aug 7 note.
"We think the share price has priced in a FY2024 recovery," adds Tng, noting that AEM is now trading at 11.4x FY2024 earnings, higher than the sector average of 10x. His new target price is $3.30, down from $3.86 previously.
The analyst does not AEM to provide better clarity on its FY2024 outlook before early FY2024, when it reports its full-year FY2023 earnings.
Nonetheless, Tng sees possible upside risks coming from stronger-than-expected orders from its major customer and earlier-than-expected success in securing orders from other potential customers.
As demand conditions in the semiconductor business can also turn quickly, AEM’s major customer could bring forward its purchase requirements which could also lead to upside risks to our current FY24F-25F revenue assumptions.
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Also, new customers’ decisions to bring forward their planned product launches could positively impact AEM’s revenue.
On the other hand, de-rating catalysts include delivery delays and the loss of its sole supplier status for its major customer, which would hurt AEM’s profitability, in our view.
Tng adds that an arbitration settlement of some US$20 million could affect AEM negatively too.
