SINGAPORE (Nov 6): CIMB is leaving its forecasts for AEM Holdings unchanged and maintaining its “add” with a $4.55 target price based on 10 times FY19 earnings.
See: AEM's 3Q earnings up more than fourfold at $9.4 mil on more than double revenue
This comes on the back of a 173% rise in revenue and a 321% rise in net profit in 3Q17. “We deem AEM’s 3Q17 net profit at 83% of full-year forecasts in line with our expectations,” says analyst William Tng in a Friday report.
AEM has also maintained its positive outlook for the coming years as its key customer continues to make the transition to their new testing platform.
“We are encouraged by AEM’s involvement via engineering services requested by its customer,” says Tng, “We also understand that AEM will be opening an Application Development Centre at its key customer’s site. Such close proximity to its customer will certainly help in the higher margin kit (consumable) portion of AEM’s business.”
In 3Q17, AEM’s equipment business contributed to about 46% of revenue while the kits, spares and services revenue contributed to around 51% of revenue. Gross material margin improved to 38.3% for 3Q17 versus 36.1% in 3Q16. 9M17 gross material margin was 31.0%.
See also: DBS remains ‘neutral’ on Singapore stocks with 2025 STI target of 3,950 points
“We could be under-forecasting AEM’s gross material margins as the lower-cost Penang facility starts mass production in FY18 and AEM devotes more resources to lower its bill of materials,” says Tng who believes it is also an opportune time for the board to consider a share split to further improve trading liquidity and increase its share base, which is a rather smallish 65 million shares currently.
Shares in AEM are trading 4 cents higher at $3.43 or 8 times FY18 core earnings.
