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Another upcycle begins

  • 3Q21 net profit of S$23.3m was in line with our S$23.8m expectation as AEM delivered on its guidance of a production ramp-up beginning late-3Q21.
  • FY21F revenue guidance was raised to between S$525m and S$550m (vs. S$460m-520m previously).
  • We think another earnings upcycle for AEM has commenced. Our TP rises to S$5.84 following further earnings upgrade.

3Q21 in line with our expectation

3Q21 revenue fell 9.7% yoy to S$146.2m, while net profit fell 4.3% yoy to S$23.3m, in line with our expectation of S$23.8m. The sequential growth in revenue and net profit was in line with AEM’s earlier guidance and was driven by the volume ramp-up for its next generation System Level Testing (SLT) handlers and peripheral tools. Cash balance as at end Sep-2021 was S$204.1m (vs. S$70.9m at end Jun-2021).

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FY21F revenue guidance raised

AEM is seeing growth in demand for SLT, and this is being reflected in increased orders in 2H21 from its customers, leading to the company raising its FY21F revenue guidance to between S$525m and S$550m (from S$460m-520m previously). AEM expects this demand to continue into FY22F. The group has also received initial orders from its engagement with other customers and has guided that there could be meaningful revenue contributions from such efforts in 2H22F and beyond.

Raising our earnings forecast

Given the confirmation from AEM’s guidance in its 3Q21 business update, we have raised our FY21F-23F revenue by 5.8%-6.3%, leading to a 4.1%-9.0% increase in our net profit estimates. We now expect 4Q21F revenue/net profit to grow 154%/89% yoy.

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Reiterate Add – a higher S$5.84 TP

Our FY23F EPS is raised by 7.2% to S$0.391. Based on a 14.92x (previously 15.30x) P/E multiple, our target price rises to S$5.84 (see Fig 3 for details). Potential re-rating catalysts are stronger-than-expected orders from its major customer and earlier-than-expected success in securing orders from other prospective customers. Downside risks are delivery delays (AEM expects none currently) due to supply chain challenges and aggressive competitive response from its competitors.