Strong Earnings Visibility; Maintain BUY

• AEM Holdings (SGX:AWX) has the strongest FY20E earnings visibility within our Singapore tech coverage.
• Despite AEM’s Penang factory being closed through the movement control order in Malaysia from 18-Mar to 14-Apr, full year sales guidance of SGD360-380m is unchanged. As demand drivers appear intact, we believe a key earnings risk is if global supply chain disruptions result in any unforeseen components shortages.
• Maintain BUY and ROE- g/COE-g Target Price of SGD2.82 (3x blended FY20-21E P/B).

Guidance Kept; Intel Deliveries > 90% on Time

• On 19-Mar, AEM announced that its sales guidance of SGD360-380m for FY20 is unchanged. Further, AEM introduced 1Q20 sales guidance of a record SGD135-145m, and is cautiously confident that 1H20 will be an all-time high despite some shifts in the delivery of its sales orders due to the Covid-19 situation.
• On 20-Mar, key customer Intel highlighted that it is delivering more than 90% of its chips on time. This is consistent with Intel’s early March message that operations are “relatively normal”.

Robust Balance Sheet and Solid Cash Generation

• AEM’s balance sheet is robust with net cash to equity of 80%. Strong cash generation is driven by high profitability and working capital efficiency. Since 2017 (ramp-up of HDMT test handlers), cash conversion cycle has been around 15 days or less.
• Intel has also kept a tight range for its days of payables outstanding (~40-50 days), even throughout the GFC, suggesting it is a good paymaster.

Accumulate on Dips

• While we caution further volatility in the share price, we believe this may present buying opportunities. AEM is currently trading at 2.5x FY20E P/B, around 0.5 SD below its 3-year mean of 3x.
• We continue to see AEM as a potential M&A play given its first-mover advantage in system level test. In that regard, we find is 4x FY20E EV/EBITDA valuation highly attractive.

Source: Maybank Kim Eng Research - 29 Mar 2020