Intel news highly favourable for AEM; maintain BUY
We expect Intel to remain a sizeable customer of AEM and developments
at Intel should be positive for AEM from: i) Intel’s back-end capacity
additions, which should underpin earnings in the coming years; and ii) 18A
node being ahead of schedule, which should have positive implications for
Intel’s dominance. AEM has an extremely positive outlook for this and it’s
our top SG tech pick. Maintain BUY and TP of SGD6.34 (16x FY22E P/E).
Intel says 18A process node ahead of schedule
Intel recently announced its 18A process, 6 months ahead of schedule. It
expects to be manufacturing ready by 2H24. This should help Intel regain
manufacturing leadership. Intel said R&D for the node is on or ahead of
milestones, imbuing confidence it can begin manufacturing on this node
in 2024. As we expect Intel to continue to be a sizeable AEM customer, we
believe this news has long-term positive implications for Intel’s dominance
and market share, and for demand for AEM’s equipment.
Riding on Intel’s spending plans; upbeat outlook
We see the 2022 ramp up of HDBI and HST test handlers as part a capex
replacement cycle within Intel. This means equipment demand from backend capacity expansion – which follows front-end capacity additions –
remains “untapped” and should underpin prospects in coming years. AEM
has an extremely positive outlook for this driver. As Intel builds up frontend capacity across the US and Europe to reduce chipmaking reliance on
Asia, we believe AEM is a beneficiary as back-end capacity will be needed.
As Intel’s new Penang plant should begin operations in early FY24E, AEM
could benefit from equipment shipment around 2H23, in our view.
Mitigating risks from supply disruptions
AEM recently noted that to date, it has not seen material direct impact
from the Russia-Ukraine war, but remains mindful of risks of rising costs if
the conflict prolongs. AEM has also built up inventory to ensure sufficiency
for future deliveries, and has so far been able to contain the impact caused
by supply chain disruptions.