• AEM announced a positive increase in revenue guidance from S$750 ~ 800m to S$820 ~ 850m due to strong demand from existing and new customers. As a result, we raise our FY22E/23E PATMI forecast for AEM by 5%.
• However, we downgrade our call on AEM to a HOLD with a lower target price as we reduce our pegged P/E multiple from 16x to 7.5x in this downcycle to factor in macro risks like rising interest rates, a potential sudden slowdown and continued de-rating of the tech space.

AEM's Earnings and Forecasts Intact

• Refer to AEM's announcement dated 2022-10-17. AEM raised its FY22E revenue guidance to S$820m–850m from S$750- 800m on demand from existing and new customers.
• We expect key customers to continue to ramp up new generation equipment and management has indicated that early signs show the US ban on high-tech chip sales to China will have little impact on its key customer. As a result, AEM's earnings should remain positive for the time-being.

Existing and New Customers Will Likely Boost Revenue

• AEM said it secured 3 new customers in high-performance computing/artificial intelligence application processors for mobility and the memory integrated device space. We believe that increased demand from its key and new customers should boost AEM’s earnings significantly in the next few years.

Major Global Players Trading at Low Valuations

• After the recent correction, major chipmakers in the US are currently trading at significantly lower valuations of between 6x to 11x P/E.
• Despite a positive outlook for AEM, we think that its valuation will likely trade at a discount to these global players and AEM's share price performance will likely be muted and sluggish until its high profile global peers rebound to higher valuations.

Source: Maybank Research - 17 Oct 2022