Is AEM’s 21% stock upside potential justified?

The semiconductor solutions provider’s shares soared after it secured a new major client this week.

  • AEM (SGX: AWX) share price rallied as much as 5.5% this week
  • The group announced on Tuesday (31 August) that it has won a new contract with one of the industry’s leading memory device manufacturers
  • Following that, CIMB analyst lifted his target price on the stock to S$4.76 from S$4.61
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AEM stock price analysis: what’s the latest?

AEM announced on Tuesday that it was selected to be the System Level Test (SLT) Solution supplier for one of the industry's leading memory integrated device manufacturers.

As part of the contract, AEM will provide this customer with its AMPS SLT+ solution, a full-stack product that includes high-speed device handling, seamless integration of test content, advanced thermal control, intelligent data tracking, and factory 4.0 automation readiness.

Following that, CIMB analyst William Tng raised his firm’s target price on the stock to S$4.76 from S$4.61 previously, while maintaining a ‘buy’ rating.

‘While no financial impact guidance was provided, the announcement demonstrates that AEM has the technical solutions to win new customers,’ Tng wrote in a research note posted on the same day.

This latest contract win also ‘reaffirms confidence that AEM can diversify its customer base’, he added. AEM had previously guided in its 1H 2021 results that it was in deep technical engagements with 10 out of the world’s top 20 semiconductor companies, and was optimistic that they would translate into meaningful revenue by FY2022.

Additionally, Tng also noted that ATECO, a South Korean specialist in the design and development of memory test handler solutions - which is 26.59% owned by AEM, had recently won orders from two of the largest memory manufacturers in the semiconductor industry for its next-generation memory module handler.

‘Given the initial success in customer diversification, we no longer peg a discount in valuing AEM. We now value AEM at 13.9 times (current sector average P/E multiple) FY22F EPS. Previously we used 13.4 times, a 5% discount to the then sector average multiple,’ said Tng.

AEM shares have 21% upside potential

The AEM stock is down by over 11% in the last one month, but up by 15.5% year-to-date.

Earlier this month, the semiconductor solutions provider reported a 30% decline in revenue to S$192.3 million for the first half of 2021. However, this was still its second highest half-yearly revenue on record.

The group stated that it remained ‘confident of a strong uptake’ in 2H 2021 into 2022. It also maintained an earlier revenue guidance of S$460million to S$520 million for FY2021.

The stock currently has a majority rating of ‘outperform’ and average target price of S$4.97, based on the latest SGX StockFacts analyst data.

The target price equates to a potential 21% upside from its last traded price of S$4.11 on Thursday (02 September).

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