Still in the early innings
2H21 PATMI beat on stronger than expected ramp
2H21 PATMI of SGD29.5m (+47.5% YoY) was ahead of our and consensus estimates, driven by the stronger-than-expected ramp of new generation equipment for Intel. Our FY22-23E PATMI estimates are largely unchanged after tweaking forecasts. AEM continues to be a conviction pick in our SG tech coverage due to favourable cyclical and structural drivers. Maintain BUY with slightly higher TP of SGD6.34. (16x FY22E P/E).
Still see opportunity for positive guidance revisions
2H21 revenue grew 52.2% YoY to SGD245.3m, driven by the volume ramp of HDBI (high density burn-in) and HST (HDMx system test) test handlers for Intel. FY21 revenue was SGD565.5m (+9% YoY), surpassing guidance of SGD525-550m. Management has expressed confidence in i) achieving FY22E revenue guidance of SGD670-720m, based on current demand and supply side dynamics; and ii) maintaining the c.17% net margin levels achieved in 4Q21 – which should assuage investor concerns on margin erosion. Our current forecasts reflect the upper end of management’s guidance, and imply a 17% net margin. As the year is still early, we still see opportunity for positive revenue guidance revisions, as this has been
common historically.
Cyclical and structural drivers
2H21 results and industry fundamentals support our view that AEM is early in the current earnings cycle. We expect FY22E to be driven by i) continued ramp of HDBI and HST, as well as initial ramp from AMPS (asynchronous, modular, parallel, smart). FY23-24E drivers include i) Intel’s capacity expansion (e.g. new Penang assembly and test plant expected to commence production in 2024); as well as ii) continued ramp for new AMPS customer(s). The rise in front-end capex should pave way for back-end capex, and we believe AEM should benefit from this with most of its customers.
Risks
In our view, key risks include unexpected worsening of supply-side problems due to Covid-19. Currently, we do not expect the Russian-Ukraine conflict to alter AEM’s customers’ capex plans. Longer-term, a risk to our view is if chip oversupply tempers customers’ capacity addition plans.