Both research houses cut their price targets for the company on weaker FY2024 outlook

 

MAYBANK Securities downgraded its rating on AEM : AWX -2.48%to &ldquo hold&rdquo from &ldquo buy&rdquo on the grounds that the semiconductor equipment maker&rsquo s FY2024 financials will &ldquo likely remain weak&rdquo , and can be expected to rebound only in FY2025. 

 

It also reduced its price target to S$2.04 from S$2.78, after AEM posted an 85 per cent year-on-year fall in net profit for its first quarter ended Mar 31. 

 

Analyst Jarick Seet said on Thursday (May 9): &ldquo While we expected a weak first half of FY2024, the muted outlook for the second half ... despite recent new-order wins, was way below our expectation for a much stronger second half of FY2024.&rdquo  

 

To reflect this sentiment, Seet lowered AEM&rsquo s valuation multiple to 11 times of the research house&rsquo s blended FY2024 and FY2025 earnings estimates. This was down from the 15-time price-to-earnings (PE) ratio used previously, based on blended earnings estimates over the same period. 

 

Seet also reduced his profit after tax and minority interests (Patmi) estimates by 31.8 per cent for FY2024 and 21.6 per cent for FY2025. He also tamped down his revenue forecasts by 19 per cent for FY2024 to S$409.1 million from S$505.3 million, and by 6.6 per cent each for FY2025 and FY2026. 

 

&ldquo Despite thinking the worst is over and expecting more new-order wins in the next few months, we think it&rsquo s better to revisit AEM closer to the fourth quarter of FY2024, as the bulk of the ramp-up orders will likely come only in FY2025,&rdquo he said. 

 

DBS Group Research on Friday shaved its price target on AEM to S$1.97 from S$2.26, while reiterating its &ldquo hold&rdquo call on the stock.  

 

The revised target price is pegged to a 14 times PE ratio, based on DBS&rsquo blended FY2024 and FY2025 earnings estimates.

 

While AEM&rsquo s Q1 revenue was in line with the research house&rsquo s expectations, its net profit missed forecasts. 

 

Following &ldquo weaker-than-expected&rdquo results and an anticipated &ldquo slower recovery&rdquo for the company&rsquo s key customer &ndash believed to be Intel &ndash DBS lowered its FY2024 revenue forecast for AEM by 5 per cent and by 4 per cent in FY2025.  

 

Its analysts also revised down their earnings estimates by 30 per cent for FY2024 and 19 per cent for FY2025, as they noted AEM&rsquo s &ldquo lower operating leverage and suboptimal utilisation&rdquo . 

 

DBS believes that although AEM&rsquo s share of revenue from Intel could decline in the near-term, the company &ldquo still has substantial exposure&rdquo to its key customer.

 

They also noted that traction in new customers has been &ldquo picking up&rdquo for AEM &ndash but cautioned that uncertainties regarding the group&rsquo s new product ramps, along with the pace of industry recovery, will &ldquo cast a shadow&rdquo on its FY2024 prospects. 

The semiconductor equipment maker&rsquo s shares falls as much as 14.7% in early trading

 

SHARES of mainboard-listed AEM Holdings fell as much as 14.7 per cent in early trading on Thursday (May 9) after the group posted an 85 per cent drop in net profit for its first quarter ended March.

 

Its counter tumbled to a four-year low of S$1.98, down S$0.34 as at 9.15 am. The last time its shares closed near this level was on Apr 15, 2020. It finished 12.9 per cent or S$0.30 lower at S$2.02.

 

On Wednesday, AEM, which provides advanced chip testing solutions, posted an 85 per cent fall in net profit to S$2.4 million for the first quarter, from S$15.6 million in the same period a year ago.

 

This came as revenue declined 38.3 per cent to S$94.2 million from S$152.7 million over the same period last year. The company noted that the semiconductor industry is still undergoing a prolonged cyclical downturn.

 

AEM&rsquo s contract manufacturing revenue was adversely impacted by the slower-than-expected recovery of its key customer and a buildup of inventory in the life science and industrial sectors. However, the group expects its two recent contract wins to grow revenue in FY2025 to &ldquo triple-digit millions&rdquo &ndash five times FY2023 levels.

 

Although AEM&rsquo s topline numbers were consistent with DBS Group Research&rsquo s estimates, earnings were a miss. It believes the steep decline in test and automation equipment sales could be due to low utilisation rates of test equipment that key customer Intel had pulled in during FY2022.

 

&ldquo We are of the view that AEM remains highly exposed to the PC market via Intel and therefore do not expect a radical positive shift in outlook for FY2024,&rdquo the research team said.