Analyst stays cautious on AEM this year, sees better longer term prospects

AEM might raise, or lower, its FY2023 revenue guidance when it reports its 1HFY2023

Analysts have maintained their calls on AEM Holdings following the chip tester’s 1QFY2023 results, which came in largely in line with their expectations.

AEM, whose key customer is Intel Corp, reported earnings of $15.6 million for the quarter ended March, down 61.8% y-o-y. Revenue in the same period was $152.7 million, down 41.7%, in line with the downturn of the semiconductor industry.

The company has maintained its guidance for a full-year FY2023 revenue of $500 million.

“Although AEM has indicated that they may revise their guidance up or down, we believe that the likelihood of an upward revision is higher,” states DBS Group Research in its May 12 note, where it has kept its “hold” call and $3.35 target price.

“AEM has stated that group visibility into the second half remains limited however there is the “flickering of positive signs across the industry” as inventories corrects for the better,” adds DBS, which has estimated AEM to report FY2023 revenue of $605 million.

“Separately, AEM states that new customer engagement is according to plan and sees more opportunities at its customer accounts with the “release of additional platforms towards the end of 2023 and 2024,” adds DBS.

Citing a month-on-month growth worldwide semiconductor sales in March, DBS expects the second half to be a better one for the industry.

“Although macroeconomic uncertainty looms, industry bellwethers affirm a recovery from 2H23, barring an economic hard landing,” states DBS, as it reiterates its long term positive view on AEM, citing how the need for new test capability by semiconductor firms remains “robust”, with demand from devices used to power AI.

In their May 12 note, CGS-CIMB analysts William Tng and Izabelle Tan have similarly maintained their “add” call and $3.86 target price.

Similar to DBS, Tng and Tan flag that AEM has warned that revenue guidance might be revised either way when it reports 1HFY2023.

“In our view, this could be due to possible order pull-backs by AEM’s customers hinging on market conditions going into the second half of FY2023,” the analysts note.

They, too, remain upbeat on the longer-term prospects of AEM, citing how its offerings have gained “customers’ confidence” and as next-generation chips require the kind of next-level testing provided by AEM.

For now, with the delayed recovery of the industry, Tng and Tan have reduced their earnings forecast by 2.2% for the current FY2023 and 29.9% for the coming FY2024.

Their target price of $3.86 is pegged to 9.7x forward FY2024 earnings, which is a 5-year average.

Maybank Securities’ Jarick Seet, meanwhile, is concerned that AEM will continue to face pressure from lower operating leverage and potential margin squeeze by its main customer.

However, even as he kept his “sell” call, Seet raised his target price slightly from $2.66 to $2.72, based on 10x forward FY2024 earnings, from 9x blended FY23/24 earnings, as we believe AEM’s outlook is positive for the longer term.

“Short-term headwinds this year may continue to present lower entry price levels in the near-term for investors,” writes Seet in his May 15 note.


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