1Q22 beat; TP trimmed on lower margin assumption
1Q22 PATMI of SGD40.8m (+205.6%) beat our and street expectations, at
33-34% of respective FY22E. This was driven by strong momentum in the
new generation equipment ramp up. We trim FY22E PATMI by 4% to factor
in a lower net margin assumption (15.7% vs. 17.0% previously). Our TP is
cut 4% to SGD6.06 (16x FY22E P/E). Maintain BUY as we see AEM as a
structural beneficiary of system level test (SLT) adoption on rising chip
complexity.
New generation equipment drives 1Q22 surge
Revenue rose 226% YoY to SGD262m, driven by i) ramp of new generation
equipment for Intel; and ii) full quarter contribution of CEI (CEI merged in
late 1Q21). Net profit margin fell 1ppt YoY to 15.6%, on a slight drop in
PBT margin (19%, -0.8ppt YoY) and a higher effective tax rate (18.3%,
+1.2ppt YoY).
FY22 revenue guidance raised
FY22 revenue guidance was raised to SGD700-750m from SGD670-720m.
Management expressed a high degree of confidence in achieving the
updated guidance based on the current operating environment and
inventory. Inventory levels are 25% higher than in Dec-21 and stood at
SGD256m, largely for production in upcoming quarters, although some is
for next year. AEM is working closely with suppliers to mitigate supply
chain challenges.
Risks of short-term profit taking
While we do not rule out further revenue guidance raises, we expect 2H22
to be seasonally softer than 1H22. Moreover, we expect difficult YoY
comparisons in 4Q22. As AEM has been an outperformer vs. the STI in the
past 3 months, we see risk of profit-taking in the near term. We remain
steadfast in our positive view that AEM is early in the current earnings
cycle, as management reaffirms multi-year growth prospects from i) new
customers, and ii) ongoing capacity expansion from existing customer(s).