1Q22 Beat; Target Price Trimmed on Lower Margin Assumption

• AEM (SGX:AWX)'s 1Q22 PATMI of S$40.8m (+205.6%) beat our and street expectations, at 33-34% of respective FY22E. This was driven by strong momentum in the new generation equipment ramp up.
• We trim FY22E PATMI forecast for AEM by 4% to factor in a lower net margin assumption (15.7% vs 17.0% previously).
• Maintain BUY as we see AEM as a structural beneficiary of system level test (SLT) adoption on rising chip complexity.

New Generation Equipment Drives 1Q22 Surge

• AEM's 1Q22 revenue rose 226% y-o-y to S$262m, driven by
  1. ramp of new generation equipment for Intel; and
  2. full quarter contribution of CEI (CEI merged in late 1Q21).
• Net profit margin fell 1ppt y-o-y to 15.6%, on a slight drop in PBT margin (19%, -0.8ppt y-o-y) and a higher effective tax rate (18.3%, +1.2ppt y-o-y).

AEM's FY22 Revenue Guidance Raised

• AEM's FY22 revenue guidance was raised to S$700-750m from S$670-720m. Management expressed a high degree of confidence in achieving the updated guidance based on the current operating environment and inventory. Inventory levels are 25% higher than in Dec-21 and stood at S$256m, largely for production in upcoming quarters, although some is for next year.
• AEM is working closely with suppliers to mitigate supply chain challenges.

Risks of Short-term Profit Taking

• While we do not rule out further revenue guidance raises, we expect AEM's 2H22 to be seasonally softer than cycle, as management reaffirms multi-year growth prospects from
  1. new customers, and
  2. ongoing capacity expansion from existing customer(s).

Source: Maybank Research - 6 May 2022