• AEM (SGX:AWX) has announced the acquisition of Mu-TEST, adding low-cost tester capabilities to its fold.
• We think the acquisition is a positive for AEM’s long-term developments and see limited earnings impact for the moment.
• Maintain ADD. The next share price catalyst could be in Jan 20 when AEM provides FY20 revenue guidance.

Acquiring Tester Capability

• AEM has announced the acquisition of a 100% stake in an automated test equipment (ATE) company – Mu-TEST (unlisted). With this acquisition, AEM adds customised tester development capabilities to its fold.
• We think this will enable the group to offer a complete testing solution to prospective clients over time and could help AEM expand its business.

Payment Structure Aligns Interests

• AEM will pay EUR7.525m (S$11.37m) for the entire stake in Mu-TEST. Founder and CEO of Mu-TEST Mr Mathieu Duprez will stay on as General Manager and Director post the acquisition.
• The acquisition consideration is based on an enterprise value of EUR8m and assumes an estimated net debt of EUR0.475m as of 31 December 2019. AEM will pay a cash consideration of EUR4,890,314 to the vendors upon completion of the acquisition. There will be a one-year holdback of EUR913,912 and a three-year performance earn out of EUR1,721,774 by way of cash or shares to Mr Duprez and a further incentive bonus of EUR344,155 if Mu-TEST achieves certain revenue targets in FY2021 and FY2022.

Mu-TEST’s Value Proposition – Customisable Low-cost Testing

• Incorporated in 2010 in France, Mu-TEST (based in Saint Etienne) is a semiconductor test solutions provider in the ATE industry. Mu-TEST is a pioneer in offering disruptive low-cost testers based on field programmable gate arrays (FPGA). This highly customisable low-cost tester architecture complements AEM’s AMPS offering to deliver complete system level test (SLT) solutions for the semiconductor and electronics industries.
• From its website, we understand that Mu-Test’s customers include Thales Group (HO FP), which uses Mu-TEST’s revolutionary ATE offerings to test devices including memories (Flash, DDR, etc.) and digital (FPGA, ASICs, etc.) products, and Cisco Systems Inc (CSCO US).
•  

Maintain ADD

• We maintain our ADD call and target price (based on ROE-g/COE-g derived P/BV multiple of 3.58x).
• Potential re-rating catalysts include further order wins from its major customer. We think AEM could provide FY20 revenue guidance in Jan 20.
• The key risks are order pullbacks or a slowdown at its major customer.

Source: CGS-CIMB Research - 30 Dec 2019