Still on track for multi-year product ramp-up

■ 1Q22 revenue and net profit were above our and Bloomberg consensus fullyear expectations.
■ AEM raised its FY22F revenue guidance to S$700m-750m (from S$670m720m).
■ Reiterate Add and TP of S$6.85. FY22F performance could be stronger in the
first half, in our view.

1Q22 results above expectations

AEM released its 1Q22 business update on 5 May 2022. 1Q22 revenue grew 226.4% yoy
to S$261.9m (1Q21:S$80.2m) while net profit grew 205.6% yoy to S$40.8m
(1Q21:S$13.3m). Pretax profit margin fell 0.8% pt to 19.0% in 1Q22 vs. 19.8% in 1Q21
while net profit margin fell 1.0% pt to 15.6% in 1Q22 (1Q21: 16.6%). At 36.0% of our and
Bloomberg consensus FY22F forecasts, 1Q22 revenue was above compared to FY17-21
where 1Q accounted for an average of 20.6% of full-year revenue. Similarly, at 33.0% of
our and Bloomberg consensus forecasts, 1Q22 net profit was ahead of expectations
compared to FY17-21 where 1Q accounted for an average of 20.3% of full-year net profit.

Outlook

In its 1Q22 business update press release, AEM said that the industry remains on track
for the secular trend where advanced packaging and heterogeneous integration continue
to drive industries such as automotive, high-performance computing and artificial
intelligence. AEM noted that the increasing complexity of semiconductor chips will
continue to propel the demand for System Level Testing solutions and the group
continues to strengthen its capabilities to support next-generation applications through
better testing solutions.

Model changes

We reflect AEM’s new FY22F revenue guidance of S$700m-750m (previously S$670m720m). Our FY23-24F revenue also rises by 6.8-6.9% as the multi-year product ramp-up
for its major customer continues. However, reflecting investors’ concerns over inflationary
cost pressures, we assume a more prudent net profit margin of 15.8% for FY22F
(previously 17.2%), guided by AEM’s 1Q22 net profit margin of 15.6% (4Q21: 17.2%,
FY21: 16.3%). Hence, we lower our FY22F EPS by 4.3% and FY24F EPS by 0.1%.

Reiterate Add

We reiterate our Add call and TP of S$6.85 based on an unchanged 15.62x (10%
premium to AEM’s 2 s.d. above its FY17-21 historical average forward P/E multiple of
14.2x) at an FY23F EPS of S$0.4384. Potential re-rating catalysts are stronger-thanexpected orders from its major customer and earlier-than-expected success in securing
orders from other potential customers. Downside risks are delivery delays, aggressive
competitive response and loss of sole supplier status or emergence of a new supplier.