"We think the share price has priced in a FY2024 recovery," adds Tng, noting that AEM is now trading at 11.4x FY2024 earnings, higher than the sector average of 10x. His new target price is $3.30, down from $3.86 previously.
The analyst does not AEM to provide better clarity on its FY2024 outlook before early FY2024, when it reports its full-year FY2023 earnings.
Nonetheless, Tng sees possible upside risks coming from stronger-than-expected orders from its major customer and earlier-than-expected success in securing orders from other potential customers.
As demand conditions in the semiconductor business can also turn quickly, AEM’s major customer could bring forward its purchase requirements which could also lead to upside risks to our current FY24F-25F revenue assumptions.
See also: OCBC’s CEO change ‘earlier’ than expected; Citi stays ‘neutral’ with target price 6.8% under
Also, new customers’ decisions to bring forward their planned product launches could positively impact AEM’s revenue.
On the other hand, de-rating catalysts include delivery delays and the loss of its sole supplier status for its major customer, which would hurt AEM’s profitability, in our view.
Tng adds that an arbitration settlement of some US$20 million could affect AEM negatively too.
