SINGAPORE (Apr 4): CIMB is keeping AEM Holdings at “add” saying its recent share price decline is a buying opportunity for new investors.
Indeed, shares in the semiconductor equipment manufacturer have fallen by more than 10% to a low of $5.99 on Tuesday after Bloomberg reported that Apple Inc. was planning to use its own chips to replace processors from Intel Corp as early as 2020.
The shift is expected to be a blow to Intel which draws about 5% of its annual revenue from Apple and is a major customer of AEM.
See: Apple plans to use its own chips in Macs from 2020, replacing Intel
In a Tuesday report, analyst William Tng notes that while the news would represent lost sales for Intel, the computing market has nonetheless been facing unit shipment declines over the past six years – which Intel has been responding to by building up its presence in other segments such as server chips.
“The greater worry is the possibility that other customers may also adopt an approach of designing their own chips. However, this threat is mitigated by the fact that not many companies have the resources to do so,” says Tng.
“The most important thing is for AEM’s major customer [Intel] is to continue to be at the forefront of processor technology and develop the ability to roll out its products quickly… There are also no changes to AEM’s FY18 guidance of a pre-tax profit of at least $42 million, which excludes the contribution from recent acquisitions,” he adds.
As before, potential re-rating catalysts for AEM include stronger-than-expected customer orders, while order delays or cancellations remain downside risks.
As at 10am, shares in AEM are trading 6 cents higher at $6.19. As a reference, AEM’s recent placement price was $6.10.
CIMB has an unchanged target price of $8.19, or 10 times FY19 earnings.
