A handler for testing times
? FY21 net profit was above our/Bloomberg consensus full-year expectations, at 106%/108% of full-year forecasts.
? AEM maintained its FY22F revenue guidance of S$670m-720m and expects to see revenue contribution from new customers from 2H22F onwards.
? Reiterate Add given our FY21-24F EPS CAGR forecast of 15.4%.
FY21 net profit above expectations
FY21 revenue grew 9.0% yoy to S$565.5m – this w as 3% above the higher end of AEM’s FY21 revenue guidance of S$525m-550m and in line with our/Bloomberg consensus full year expectations at 103%/104% of full-year forecasts. FY21 net profit fell 6.0% yoy and was above our/consensus full-year expectations at 106%/108% of full-year forecasts.
Market over reacted to margin compression guidance
In its 11 Jan 2022 guidance, AEM highlighted that it expects some margin compression in view of higher supply chain costs and an increase in R&D to engage customers in new projects. We note that OPM fell 2.0% pts in FY21 to 19.8% from 21.8% in FY20 as R&D expenses rose 74% yoy to S$19.9m (FY20: S$11.4m). If AEM capped its R&D spend at FY20 levels, FY21 OPM erosion would have been a smaller 0.5% pts. We also note that NPM rose to 17.2% in 4Q21 as production gathered pace for its major customer.
AEM maintained its FY22F revenue guidance
AEM maintained its FY22F revenue guidance of S$670m-720m. At the top end of this guidance, FY22F revenue could potentially grow 27.3% yoy. On cost management, we think AEM is still coping well with the inflationary cost environment.
Despite market de-rating, AEM remains an Add
We raise FY22-23F revenue forecasts by 6.0-9.7% as orders from customers remain strong. Operating expenses are reduced by 13.4%-21.8% as w e may have been too aggressive in our previous estimates. We reiterate our Add call but lower our TP to S$6.85 from S$7.90. This is based on 15.62x [10% premium (given our FY21-24F EPS CAGR expectation of 15.4%) to AEM’s 2 s.d. above its FY17-21 historical average (7.4x) forward P/E multiple of 14.2x] FY23F EPS of S$0.4384. Our previous TP of S$7.90 was based on 17.94x (15% discount to the FY23F sector average P/E multiple of 21.10x in 10 Jan 2022). 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, aggressive competitive response and loss of sole supplier status or emergence of a new supplier. On competitive response, we believe AEM’s 24 Feb 2022 announcement that the company and two of its subsidiaries are respondents in a confidential arbitration in the US (hearing expected to be concluded in
2023) is likely a competitor’s response to slow AEM’s progress in the grow ing SLT market.