January 17, 2020

On  6  November  2019,  management  explained  how  their  key  customer’s  new  business strategy and push into AI solutions will continue to  drive demand for their high density test handlers (HDMT). A  host of events have taken place since, which communicates  the key customer’s strategy. While we remain cautious over  the  key customer’s  current  business  strategy,  we  acknowledge  that AEM  stands  to benefit  from  this business  pivot, which will support steady sales of test handlers and its peripherals.

AEM’s  new  acquisition,  Mu-TEST,  extends  AEM’s  solution  offerings  by  enabling  the  production  and  sales  of  test  equipment based on Field Programmable Gate Array (FPGA)  technology.  This  allows  AEM  to  enter  the world  of  niche  mixed  signal  semiconductors with a  different  set  of market  players,  whom  have  different testing  needs  than  large  semiconductor players.

As  investors  continue  to  understand  more  about  AEM’s market positioning within the test equipment space, we think  a  substantial  valuation  re‐rating  could  be  in  the  cards.  We  provide benchmarks against test equipment competitors and  create a bull case scenario for a 16x Price/Earnings peg.

Maintain  OUTPERFORM,  with  a  12M  Target Price of S$2.57, based on 2020F diluted EPS. This TP is based off a 14x PE. Our bull case scenario with 16x PE gives us S$2.93 TP.  – KGI

Closing Price: S$2.16