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