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DBS: AEM Holdings – Buy Target Price $6.04

Posted on August 15, 2022August 15, 2022 By alanyeo No Comments on DBS: AEM Holdings – Buy Target Price $6.04
<Results first take> On track to beat records; 1H22 profit before tax grew +187% yoy, above expectations
  • Highest half yearly profit before tax of S$102.0m (+187% yoy, +35% hoh)
  • Revenue guidance revised 6-7% higher to S$750m-S$800m from S$700m-S$750m previously
  • Acquisition of Nestek to benefit the higher margin consumables business 
  • We currently have a BUY call with TP of S$6.04
Results First Take 

Record-high half year revenues of S$540.5m, +181% yoy and +45% hoh. The surge in revenue can be attributed to the ramp up of the new generation SLT (system level test) handlers, burn-in test handlers, increased sales of consumables and tools, as well as contributions from CEI. 1H22 revenue amounts to 70% of our full year forecasts, above our expectations.  

An interim dividend of 6.7 Scts has been proposed for 1H22 (2.6 Scts in 1H21). This amounts to a payout ratio of c.25%. 

Revenue guidance revised upwards a second time, 6-7% higher at S$750m-S$800m from S$700m-S$750m previously. 1H22 revenues make up 68-72% of the full year guidance, which hints at a weaker second half. This could be partially attributed to an overall deteriorating macroeconomic environment with inflationary pressures, supply chain issues, and geopolitical tensions, leading to demand and supply uncertainties going forward.  

Highest half yearly profit before tax of S$102.0m (+187% yoy, +35% hoh). In line with the record-breaking half year revenues, net profit similarly surpassed previous highs, representing 67% of our full year forecasts. However, gross profit margin has declined to 31% in 1H22 (vs 34% in 1H21) on the back of changes in the product mix and cost pressures from supply chain disruptions. We expect that there will still be some pressure on margins given that the supply chain disruptions will not completely ease in 2H22. Overall net margins remained the same as (i) R&D expenses made up a lower percentage of revenue, at 2.9% of overall revenues in 1H22 compared to 3.4% in 1H21, (ii) other income came in higher at S$3.1m in 1H22 vs 1.4m in 1H21, and (iii) higher foreign exchange gain of S$3.1m in 1H22 compared to a loss of 0.3m in 1H21. 

S$m? 1H22? 1H21? Change yoy? 
Revenue 540.5192.3181.1%
Gross profit166.365.4154.1%
Profit before tax 102.035.5187.4%
Net profit 83.129.7 179.7%
Gross margin30.8%34.0%-3.2 ppts
PBT margin 18.9%18.5% 0.4 ppts
Net margin (%) 15.4%15.4% 
Source: Company, DBS Bank

Acquisition of Nestek to benefit the higher margin consumables business. AEM has acquired a 53.3% stake in Nestek with a consideration of S$16.2m. The group will also acquire an additional 26.7% of shares in future for a consideration of S$8.1m, which will bring total shareholding to 80%. AEM also has an option to purchase the last remaining 20% from existing shareholders for S$5.4m. Nestek is a South Korean company that is involved in the design and manufacture of consumables such as pins and sockets. We are positive on this acquisition as consumables generally has higher margins in excess of 40%. 

Better customer diversification with two new customer wins.  AEM has received orders for its test handling solutions from a leading high-performance computing / artificial intelligence company.  The other new customer in the mobile devices space has placed orders for AEM’s application processors. Furthermore, AEM has been increasing its engagement with other semiconductor companies. We keep a lookout for new customer wins which should help in reducing concentration risk from the key customer. 

We currently have a BUY call with TP S$6.04. More updates to come after the briefing on Monday afternoon.

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Research - Equities Tags:AEM

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