SINGAPORE (May 23): DBS Vickers likes AEM Holdings, the global provider of high-end test handlers, giving it a target price of S$3.35 as the shares currently trade at S$2.61.

In an unrated report on Tuesday, DBS says years of engineering investments for AEM are starting to bear fruit.

The commercial ramp-up of AEM’s newly developed, next-gen high density modular test platform for a key customer, represents a multi-year opportunity for the group, says DBS.
 
“Earnings projected to grow at 75.6% CAGR from FY16-FY19F but earnings visibility extends well beyond the next three years,” says the broker.

With the launch of a key customer’s multi-year migration programme to its next-gen test handler platform, AEM’s FY17F order book surged to S$152 million as at April 15, and looks likely to stay firm in the coming years.

Beyond one-off equipment sales, upgrade opportunities and recurring sale of higher-margin consumables over the life of these equipment are also indicative of future earnings potential, says DBS.

Apart from replacement demand, order wins in new sectors like the chip-intensive 5G space, could provide further upside, adds DBS.

Close peers engaged in semiconductor equipment manufacturing include Cohu and UMS Holdings.

“We thus value the company at S$3.35 based on 10x FY18F PE vs peers’ 13x,” says DBS.