CGS-CIMB Research analyst William Tng has maintained his “buy” call with an unchanged target price of $6.85 on AEM Holdings, after global semiconductor sales have grown for the 11th straight month.
In a note on April 6, Tng writes that according to the Semiconductor Industry Association, global
semiconductor industry sales grew 32.4% y-o-y (3.4% mom) to US$52.5 billion ($71.4 billion) in February. This was also a 3.4% m-o-m increase from January’s figure of $50.7 billion.
SIA also noted sales of semiconductors to USA outpaced that in other regional markets, climbing 43.2% y-o-y in February 2022.
It also added that year on year, semiconductor sales rose 29.3% in Europe, 21.6% in Japan, 21.8% in China and 41.4% in Asia Pacific and other regions.
On a 3-month moving average basis, global semiconductor sales for Dec 2021 to Feb 2022 grew 4.8%, compared to the period of September to November 2021.
With this backdrop, Tng explains that AEM is his “top pick” in the Singapore semicon sector as its key customer, understood to be Intel Corp has laid out its planned product roadmap for 2022.
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In March, Intel launched the Intel Arc graphics family (of chips) for laptops, and the company plans to release the desktop and workstation versions of this product later this year.
In its 2022 Investor Meeting, Intel also provided its product roadmap for data centre chips, where it announced that it will launch its so-called “Sapphire Rapids” chip in 1Q2022 and “Emerald Rapids” in 2023. The chipmaker’s “Sierra Forest” and “Granite Rapids” chips will come in 2024.
As such, Tng says potential re-rating catalysts for AEM are upward revisions to revenue guidance in the coming months and further new customer wins, while upside to his FY2022 earnings forecast could come from potential accretive M&As.
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AEM’s cash balance as of end-Dec 2021 stands at $216.2 million.
On the other hand, some downside risks are delivery delays due to lockdowns or movement restriction extensions - such as the one in Shanghai -, order pushback by customers and margin pressure arising from higher operating costs.
One “company specific risk,” Tng identifies, is an arbitration order filed against AEM in the US.
AEM said that, based on preliminary analysis, the claims appear to lack factual and/or legal support. Furthermore, the arbitration is still in the early stages and the claimant has not quantified their demands.
The arbitration hearing is currently expected to conclude in 2023, but in the meantime, AEM’s management has guided that its operations are unaffected by the arbitration.
Shares of AEM closed on Apr 7 at $4.76, with a FY2022 P/B ratio of 3.03 and dividend yield of 2.06%.
