AEM Raised FY21E Guidance; Top Pick for SG Tech

• AEM (SGX:AWX)'s 3Q21 PATMI of S$23.3m (-4.3% y-o-y, +42.7% q-o-q) was ahead of our expectation but in line with consensus. The sequential recovery was driven the volume ramp of new generations of equipment for Intel.
• We raise our FY21E earnings per share forecast for AEM by 5% to factor in the increased FY21E revenue guidance, but keep FY22-23E largely unchanged pending FY22E guidance in early 2022.
• AEM is our top pick for Singapore tech as we see many quality tailwinds and the least supply side risks. BUY.

Volume Ramp of New Generations of Equipment

• Revenue fell 9.7% y-o-y but was up 30.5% q-o-q. The sequential growth was from the volume ramp of new generation of equipment for Intel (we believe these to be High Density Burn-in, or HDBI; and HDMx System Test, or HST). This ramp will continue in 4Q21 through FY22E. This is in turn driven by robust demand growth for mission critical chips as well as the increased adoption of advanced heterogeneous chips (which we believe refers primarily to Intel’s Sapphire Rapids and Alder Lake products).
• AEM's FY21E revenue guidance was raised to S$525-550m from S$460-520m.

Several Tailwinds Driving FY22E Upcycle

• We see several tailwinds in Temasek, we believe M&A may also be accretive to earnings. Intel’s node migration to Intel 4 (products planned for 2023) may also spur greater testing needs, which could benefit AEM.

No Expected Shipment Delays

• Maintain target risk to bear in mind is margin pressure as input costs rise, as we believe costs may not be fully passed along to customers.

Source: Maybank Kim Eng Research - 11 Nov 2021