To benefit from Intel’s investment in Europe
? Intel continues its expansion plan and on 15 Mar 2022 announced possibly
up to €80bn investment in Europe over the next decade.
? We expect AEM to benefit from Intel’s expansion, as the latter should
translate into demand for its test handler (TH) products.
? We assume AEM will remain the sole TH supplier for Intel’s current testing
methodology. Reiterate Add; TP unchanged at S$6.85.
Possibly up to €80bn investment over the next decade
? Intel Corp (INTC US, Not Rated) today (15 Mar 2022) announced the first phase of its
plan to possibly invest up to €80bn in the European Union over the next decade.
? The investment includes research and development (R&D), chip manufacturing and
packaging technologies.
? Intel’s current plans includes an initial €17bn investment for a leading-edge
semiconductor fab mega-site in Magdeburg, Germany. It plans to build two fabs at
Magdeburg. Intel expects construction of these fabs to begin in the first half of 2023 and
production to come online in 2027. These new fabs will feature its most advanced
Angstrom-era transistor technologies, serving the needs of its foundry customers.
? Intel is also continuing to invest in its manufacturing plant in Leixlip, Ireland with an
expansion project and intends to spend €12bn to double its manufacturing space there.
? In Italy, Intel has entered into negotiations with the Italian authorities to set up a backend manufacturing facility which could potentially cost up to €4.5bn.
Reiterate Add
? We reiterate our Add call on AEM and TP of S$6.85.
? Our TP is based on CY23F P/E of 15.62x, 10% premium (given our FY21-24F EPS
CAGR expectation of 15.4%) to AEM’s 2 s.d. above FY17-21 historical average (7.4x)
forward P/E multiple of 14.2x. We project FY23F EPS of S$0.4384.
? 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 for Intel’s test handler product needs.
? Higher raw material and logistics cost could also pressure AEM’s profit margins, leading
to lower profitability for FY22F.
? AEM has also on 24 Feb 2022 announced that the company and two of its subsidiaries
are respondents in a confidential arbitration in the US (hearing expected to be concluded
in 2023). The outcome of this arbitration is currently uncertain though we note that AEM
has received legal advice from its lawyers in the US, and has been advised that based
on a preliminary analysis, the claims appear to lack factual and/or legal support.