AEM Holdings to see smooth sailing ahead in 2020 following speed bumps in 2019: Maybank

SINGAPORE (Jan 30): Maybank is initiating coverage on AEM Holdings with a “buy” and a target price of $1.21.

In a Tuesday report, analyst Lai Gene Lih says, “We model a base case scenario where 2020E earnings could rebound 133% YoY following a 51% slump in 2019E, driven by a potential recovery of HDMT test handler (TH) deliveries, and production ramp-up from new customers.”

Following two strong years of production ramp-up, HDMT TH orders are expected to be tempered by slower operational fleet replacement. But the analyst reckons that deliveries in 2020 could pick up as the core customer completes its capacity expansion in Israel.

In addition, the group’s customer has re-affirmed the timelines of new chips manufactured on its new 10nm process, which could bode well for AEM’s prospects.

“We currently forecast HDMT TH shipments of 44/17/35 in 2018-20E. However, we may have to update our earnings forecasts as and when AEM updates on 2019E guidance,” says Lai.

On the other hand, the group’s strong execution has attracted customers to select it to work on various other initiatives, including a next-gen hybrid solutions product.

Meanwhile, the progress of the core customer’s 10nm process, R&D (2017: US$3 billion) that is head-and-shoulders ahead of peers, and strong portfolio of IPs and chip manufacturing know-how suggests that the customer’s competitive advantages are intact.

Since 2017, the group has acquired three companies and introduced its own in-house modular and massively parallel test handling solutions AMPS, which allowed it to secure at least three customers.

Development and customisation for these products are already underway and the management expects production ramp-ups in 2020E.

As at 3.50pm, shares in AEM Holdings are trading 7.18% higher at 97 cents.