1H22: Record 1H22 On Strong Momentum; Revenue Guidance Raised
1H22 earnings of S$83m (+180% yoy) are above our expectations, forming 75% of our full-year estimate. Growth was driven by volume ramp-up for the new generation System Level Testing handlers, Burn-In Test handlers, related consumables and peripheral tools. Management raised 2022 revenue guidance marginally from S$700m750m to S$750m-800m, indicating a softer 2H22, which will form around 33% of 2022 revenue. Downgrade to HOLD with a 10%-lower target price of S$5.02.
RESULTS
• 1H22 above expectations. AEM Holdings’ (AEM) 1H22 earnings of S$83m (+180% yoy) are above our expectations, forming 75% of our full-year estimate. Revenue grew 181% yoy to reach a record level of S$541m, driven by volume ramp-up for the new generation System Level Testing handlers, Burn-In Test handlers, related consumables and peripheral tools, and contributions from CEI Pte Ltd which AEM acquired in Mar 21.
• 2022 revenue guidance raised. Management is now targeting to achieve full-year revenue of S$750m-800m, from S$700m-750m previously. This implies a revenue growth rate of around 37%, after the S$565.5m achieved in 2021. AEM’s revised target remains strong despite the more bearish guidance of Intel (INTC US) in late-July. Intel slashed its 2022 revenue guidance by around 12% to US$67b after reporting a weaker-than-expected result, indicating an 11% yoy decline. Intel highlighted that the sudden and rapid decline in economic activity was the largest driver of the shortfall but 2Q22 also reflected its own execution issues in areas like product design and the ramp-up of Accelerated Computing Systems and Graphics Group offerings.
• Won two new customers. AEM was recently selected as a supplier for a leading High Performance Computing/Artificial Intelligence company and consequently received orders for its customised, innovative test handling solutions. In addition, AEM also received orders from a leading mobile device company for its application processors.
STOCK IMPACT
• Our positive view remains unchanged. We believe Intel’s IDM 2.0 strategy would benefit AEM. Driving towards that strategy, Intel’s new fabrication plants (fabs) would drive demand for AEM on new back-end testing equipment, while older fabs would contribute to steady demand for AEM’s consumables and services as well as equipment upgrades.
• AEM is set to continue investing in its R&D and engineering capabilities as it believes that longer-horizon trends such as 5G, edge computing, AI, and electric vehicles will drive the need for more semiconductors and the integrated testing solutions that AEM is pioneering. AEM has embarked on expansion, with new R&D labs and better manufacturing facilities in its key geographies like Singapore, Malaysia and the US. This will also bring AEM’s operations closer to its existing and potential customers.
EARNINGS REVISION/RISK
• To account for AEM’s upward revision of its 2022 revenue guidance to S$750-800m, we raise our 2022/23/24 revenue by 10%/2%/2% to S$792m/828m/853m. As a result, our earnings estimate increased in tandem with our revenue revision, rising by 10%/2%/2%.
VALUATION/RECOMMENDATION
• Downgrade to HOLD with a 10% lower target price of S$5.02 (S$5.60 previously). We roll over our valuation base year to 2023F and peg it to a lower PE multiple of 10.5x, or +0.5 SD of its historical mean (down from 15.6x, or +2SD to its historical five-year mean). The reduction in our PE multiple peg is to capture the potential weaker sentiment in the semiconductor industry as more global players, including Intel, are cautioning for a weaker near-term outlook.
SHARE PRICE CATALYST
• Higher-than-expected revenue growth rates.
• Better-than-expected cost management.
• Earlier-than-expected integration synergies with CEI.