Bringing FY20E Earnings Forward; Maintain BUY

• AEM HOLDINGS LTD (SGX:AWX) raised its FY19E revenue guidance to SGD265-280m from SGD225-250m. That said, it believes that the bulk of this could be frontloading of 2020E orders. As such, we raise FY19E EPS by 27% but reduce FY20E by 24%.
• Our ROE-g/COE-g Target Price is unchanged at SGD1.40, based on 3x blended FY19-20E P/BV.
• Catalysts could come from FY20E contributions from new hybrid equipment and Huawei as it ramps up production.
• Maintain BUY.

Increased Orders for HDMT and STHI

• AEM’s improved guidance stems from increased orders for HDMT test handlers (TH) and STHI TH. STHI TH is a legacy system-level test (SLT) equipment. AEM believes its higher HDMT TH orders represent frontloading by its customer’s production ramp-up of 10nm chips.
• Increased STHI TH orders reflect its key customer’s –a USD230b market-cap chipmaker-increased needs in SLT, as it is operating HDMT at full capacity.

FY20E Upside Downside

• Amid a lack of analysis. Our base sold in FY19-20E: 49 units this year and 2989 units sold in FY19-20E. This may happen if:
  1. end-market demand for its customer’s 10nm chips turns out; and/ or
  2. equipment frontloaded to 2020E from 2021E.
• Our bear case with a play out if end-demand is soft due to severe economic weakness.

SLT at Inflection Point

• AEM has hired an positive, as we believe it now has a dedicated resource to build out its.
• We believe that through HDMT and AMPS, AEM will benefit from the industry’s adoption of SLT, given its superior throughput, accuracy and cost effectiveness over conventional testing methods.

Source: Maybank Kim Eng Research - 29 Jul 2019