• Intel has announced a ~US$20bn capex for two wafer fabs in the US, with plans to announce further capacity expansion within the year.
• We believe AEM (SGX:AWX), as the sole supplier of test handlers to Intel, will be a beneficiary of such capex.
• Reiterate ADD on AEM with an unchanged target price of S$4.63. We see FY21F revenue guidance as a catalyst for AEM's share price re-rating.

Intel Announces IDM 2.0

• In his first business update as chief executive officer (CEO) of Intel (INTC US), Pat Gelsinger laid out the following:
  • Intel will continue to manufacture the majority of its products internally — the company’s 7 nano-metre (nm) development is progressing well, with the design of its first 7nm chip on track to be finalised by 2Q21F;
  • Intel will also increase its engagement with third-party foundries, which manufacture a range of Intel products, and
  • Intel will rebuild its foundry business (IDM 2.0 plan) with the establishment of a new standalone business unit, Intel Foundry Services (IFS), which reports directly to the CEO. IFS will offer Intel-based products as well as non-Intel based chip architecture. Intel will spend an estimated US$20bn to build two new wafer fabs in Arizona, US. Beyond these investments,
  • Intel also plans to announce the next phase of its capacity expansion in the US, Europe and other global locations within the year.

CEI Offer Update

• As at 19 Mar 2021, AEM has secured a 53.45% stake in CEI Limited (SGX:AVV).
• Recall that AEM launched an offer for CEI at S$1.15 per share on 11 Jan 2021.

Reiterate ADD on AEM

• Intel’s decision to believe AEM remains the sole supplier of such test handlers for Intel’s current testing methodology.
• Our target price remains unchanged at S$4.63 based on a Gordon-Growth-derived P/BV multiple of 4.40x (unchanged).
• Re-rating catalysts are FY21F revenue guidance delays due to lockdowns/movement restriction extensions and loss of competitiveness by its key customer.

Source: CGS-CIMB Research - 24 Mar 2021