Osman notes that Intel has earmarked elevated capex of about US$25 billion-US$26billion ($34 billion-$35 billion) over 2022-2024, and has planned to build new testing facilities in Malaysia and Vietnam where AEM’s production line is located.
As such, he expects a “positive flow-through impact” to AEM as it ramps up production of its next-gen testers to Intel.
On a broader view, Osman says that Citi’s Taiwan semicon team expects structural demand growth for semiconductors, which he believes will drive corresponding demand for back-end testing solutions as applications become more complex and varied.
Due to this, he expects AEM to secure new customers from its 2HFY2022 onward and diversify its business from Intel. In addition, AEM has guided for FY2022 revenue of about $670-720 million, while Citi’s forecast stands at $703 million, 24.4% higher y-o-y. (AEM has a December FY year end.)
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Separately, Osman says that the company’s solid balance sheet supports M&A efforts, noting that AEM has spent about $140 million on acquisitions since 2017 as it focuses on strengthening its value proposition in back-end system level testing (SLT) solutions.
The company’s recent placement to Temasek also bolsters its net cash balance sheet - standing at $135 million at end-2021 - and paves the way for further M&A ahead.
AEM’s valuations also look attractive relative to industry peers, having an FY2022 P/E ratio at about a 30% discount.
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Osman also highlights its “strong growth profile”, forecasting an EPS CAGR of 23% over FY2021-FY2024, compared to about 13% for Citi’s Singapore coverage.
However, he does warn of some downside risks for AEM, including customer concentration risks, technology risks, and supply chain risks.
As of 10.47 am, shares of AEM were trading at $4.94, with a FY2022 P/B ratio of 3.1 and a dividend yield of 2%.
