April 3, 2023

Embracing Test 2.0 

 AEM was a presenter at the second run of our CGS-CIMB Tech/EV Conference on 29 Mar 2023. 

 AEM reiterated its view that the new generation of semiconductor chips will require a change in test flows that its Test 2.0 offerings provide. 

 Reiterate Add with an unchanged TP of S$3.86.

Key highlights from our conference 

We highlight the key discussion points from AEM’s presentation at our second CGS-CIMB Tech/EV Conference on 29 Mar 2023. AEM believes its Test 2.0 solutions address customers’ testing requirements (in terms of lowering cost of test and providing a more complete test coverage) as the new generation of semiconductor chips grow in complexity and packaging technologies for such chips evolve. AEM believes its ability and willingness to customise solutions suited to customers’ needs, rather than providing a big-ticket single solution to customers, is a key competitive differentiating factor for the company. The company believes its new customers could account for 10-20% of FY23F revenue, with further growth expected in FY24F and beyond. AEM has also strengthened its component offerings. On 12 Aug 2022, the company announced that it had acquired a 53.3% stake in Nestek Korea Co Ltd (unlisted), which develops and manufactures probe pins and test sockets for various electronic components used in semiconductor chip testing. 

Updates from its key customer 

Separately, AEM’s key customer also hosted its Data Center and AI (Artificial Intelligence) Investor Webinar on 29 Mar 2023. Intel (INTC US, NR, CP:US$31.52) updated that its fourth-generation Xeon processor for data centres, code-named “Sapphire Rapids,” was finally being shipped to over 50 original equipment manufacturers after receiving 450 design wins following a one-year delay. Intel also provided an update on the roadmap for the introduction of future generations of data centre chips, with its fifth-generation Emerald Rapids processor scheduled to ship in 4Q23F followed by Sierra Forest and Granite Rapids in 2024F. Intel also projected that the data centre processors market (by revenue) could possibly see a low-20% CAGR over FY22-27F, from more than US$40bn in FY22 to exceed US$110bn in FY27F. 

Reiterate Add 

We reiterate our Add call on a potential FY24F net profit recovery (+39.6% yoy by our estimate). Our TP is based on 9.5x FY24F P/E, 0.5 s.d. above its 6-year average given its sole supplier status with its major customer. Re-rating catalysts include stronger-than-expected orders from its major customer and earlier-than-expected success in securing orders from other potential customers. Downside risks are delivery delays and the loss of the sole supplier status for its major customer, which would negatively affect AEM’s profitability, in our view.

ESG in a nutshell 

AEM Holdings Ltd is a semiconductor equipment company headquartered in Singapore. AEM received an ESG grade of C- from Refinitiv (Apr 2022). Refinitiv noted that AEM scored well in the Social pillar of ESG. In the Environment pillar, Refinitiv noted that there was room for improvement.

ADD by CGS-CIMB Research.  Share price closed at S$3.25