SINGAPORE (May 23): DBS Vickers likes AEM Holdings, the global provider of high-end test handlers, giving it a target price of $3.35 as the shares currently trade at $2.61.
In an unrated report on Tuesday, DBS says years of engineering investments for AEM are starting to bear fruit.
The commercial ramp-up of AEM’s newly developed, next-gen high density modular test platform for a key customer, represents a multi-year opportunity for the group, says DBS.
“Earnings projected to grow at 75.6% CAGR from FY16-FY19F but earnings visibility extends well beyond the next three years,” says the broker.
With the launch of a key customer’s multi-year migration programme to its next-gen test handler platform, AEM’s FY17F order book surged to $152 million as at April 15, and looks likely to stay firm in the coming years.
Beyond one-off equipment sales, upgrade opportunities and recurring sale of higher-margin consumables over the life of these equipment are also indicative of future earnings potential, says DBS.
Apart from replacement demand, order wins in new sectors like the chip-intensive 5G space, could provide further upside, adds DBS.
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Close peers engaged in semiconductor equipment manufacturing include Cohu and UMS Holdings.
“We thus value the company at $3.35 based on 10x FY18F PE vs peers’ 13x,” says DBS.
