Maybank Research’s Jarick Seet has upgraded his call on AEM AWX to “hold” from “sell” previously, with the semiconductor solutions provider having cleared an “overhang” after reaching a settlement with Advantest for US$20 million ($26.62 million).
In his report dated July 28, analyst Jarick Seet has also increased his target price to $3.90 from $2.72 previously as he rolls over his P/E ratio to 12x of AEM’s FY2024 earnings.
“We think the market has already priced in a weak 2QFY2023 and FY2023 and will now focus on AEM’s prospects ahead,” he writes.
“While we believe AEM’s negatives have been fully priced in, we are still waiting for more clarity on 2024 orders and the strength of a potential rebound in the semiconductor sector,” he adds.
According to him, the US$20 million settlement — in regards to a thermal component used in Advantest’s 5037 product — should be “positive” for AEM as there will be no other payments related to the matter, which allow AEM to operate and market its new generation of active thermos interposer without “hindrance”.
The settlement fee will be paid out in two instalments — US$9 million in 3QFY2023 ending September and US$11 million in 3QFY2024 — but will be recognised in the profit and loss provisions for FY2023.
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While Maybank’s Seet has lowered his forecasted earnings for FY2023 by 34.5% to factor in these provisions, he believes the settlement will further cement AEM’s place as a leader in the active thermo interposer segment. “Designs of new generation circuits will be all owned by AEM and won’t have any contest by Advantest, which will be positive for AEM’s prospects,” he says.
More immediately, he expects a “dismal” 2QFY2023 for AEM, with weaker demand from customers likely to result in a y-o-y decline of 57% to revenue and earnings of $160 million and $18 million, respectively.
Seet’s upside risks for AEM include revenue expansion from securing new customers or a wallet expansion and increased orders from existing customers, synergistic and accretive acquisitions, as well as positive customer-related news flow that could catalyse improved orders for the company, such as capacity expansion or the launch of new chips.
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On the other hand, order cancellations, delays and earnings misses, emerging technology from rivals that could erode AEM’s competitive position, especially with core customers, would be downsides for the company.
Meanwhile, DBS Group Research has kept its “hold” with a target price of $3.35 following the release of the arbitration outcome by AEM, and will provide more updates after the company announces its 1HFY2023 results.
As at 1.31pm, shares in AEM were trading 13 cents or 3.37% down at $3.73.
