<Updates from 1Q22 Briefing> Still going strong
- Earnings momentum remains strong, forecast remains unchanged on expected front-loading of revenue in FY22
- Full year FY22 net margin to remain at similar level to 1Q22 net margin of 15.6% despite inflationary pressures
- AEM is well positioned to benefit from the strong industry outlook for semiconductors and strong systems level testing (SLT) demand
- Maintain BUY with unchanged TP of S$6.04.
Key highlights from AEM’s 1Q22 Analyst Briefing
- Front-loading of revenue in FY22. Although 1Q22 results made up 35-37% of the increased guidance of $700-750m, (vs. 33% as per our forecast) it could be attributed to the change in buying cycles given the supply chain challenges. Management has reiterated that the multiyear ramp up continues, and the upwards revision of guidance is based on a higher level of confidence in customer demand. However, deployments by the quarter may differ.
- Full year FY22 margins to remain at similar levels to 1Q22 margins. Despite inflationary pressures, management has put in place levers to ease cost pressures. The slightly lower net margin of 15.6% in 1Q22 vs 16.6% in 1Q21 is mainly due to the consolidation of CEI Pte Ltd, as well as change in revenue mix. Test & Automation Equipment segment, which generally commands lower margins as compared to the Consumable division, accounted for 34% of total revenue in 1Q22, vs 24% in 1Q21.
- Supply chain disruptions mitigated with proactive inventory management. AEM has pivoted away from a just in time approach, with inventories increasing by 25% to $256.2m in 1Q22. AEM now has higher inventory levels of 3-6 months compared to 2-3 months previously in view of the supply chain bottlenecks.
- Maintain BUY with unchanged TP of S$6.04. There are no changes in earnings forecasts, and our valuation remains pegged to 15.0x FY22 earnings. Our revenue forecast for FY22F remains at S$777m, which is 4-11% higher than the new guidance. We believe AEM is in a strategic position to benefit from its key customer and industry uptrend.
Our thoughts
Earnings momentum remains strong, forecast remains unchanged on expected front-loading of revenue. The robust 1Q22 results can be attributed to the strong demand of new generation equipment and tools, alongside the consolidation of CEI Pte Ltd. With AEM’s next generation handler in mass production and increasing systems level testing (SLT) demand, we can look forward to good growth ahead.
AEM is well positioned to benefit from the strong industry outlook. Based on data from Semiconductor Industry Association (SIA), worldwide semiconductor shipments grew by 23% y-o-y to $50.6 billion in March 2022. With increasing digitalization, greater adoption of 5G technology, electric vehicles, IoT, cloud, and artificial intelligence, SLT demand remains intact, which will be advantageous to AEM.
Source: CEIC, SIA, DBS Bank