Look Past 1H21 Normalisation; Maintain BUY on AEM

• AEM (SGX:AWX)'s 1H21 PATMI of S$78m (-46.6% y-o-y) was in line with our estimate but fell short of consensus’. The weakness was due to high base effects as AEM had new products in 1H20.
• Our P&L forecasts are unchanged, but we trim FY21- 23E earnings per share forecast by 3-9% to account for dilution from the private placement to Temasek.
• We raise AEM's target price to S$5.77, now on 16x FY22E P/E (prev: 14x), as we believe the cash infusion would speed up AEM’s expansion into adjacencies to provide end-to-end solutions to customers.
• BUY.

On Track for Earnings Recovery in 2H21

• AEM's 1H21 revenue fell 29.8% to S$192.3m due to a normalisation after exceptionally strong demand from Intel in 2020. Gross margin rose 5.2ppt y-o-y to 44.4% on a favourable shift in product mix.
• AEM affirmed FY21 revenue guidance of S$460-520m, and sees strong uptake of its products in 2H21 through 2022 as it phases in new generation tools into Intel’s high volume manufacturing sites globally. These tools are highly differentiated to cater for the high performance computing segment.
• AEM also reiterated that it expects to gain meaningful revenues from the deep engagement it has with 10 of the top 20 semiconductor companies globally in 2022.

Validation of AEM's Growth Potential

• AEM's announced a proposed private placement to Temasek to raise billion assurance in an increasingly interconnected world.

Incrementally Positive on Execution Ability

• We raise our target P/E cash infusion. We think this is reasonable, as it is still a discount vs global back-end test handler/ equipment peers trading at 18.5x/20.7x on FY22E.

• While AEM currently has high confidence of being able to fully deliver a key risk.

Source: Maybank Kim Eng Research - 9 Aug 2021