AEM Holdings

Price targets:

$2.38 INITIATE BUY

(DBS Group Research)

$1.80 OUTPERFORM

(KGI Securities Research)

$2.12 BUY (Maybank Kim Eng Research) $2.12 ADD (CGS-CIMB Research)

Yet, market watchers believe the counter is poised to soar even higher.

DBS is initiating coverage on AEM with a “buy” recommendation and a price target of $2.38, representing a potential upside of 24%.

“Our price target is pegged to 12.1 times FY2020F PER, and is well below its industry peers’ FY2020F PER of 17.8 times,” says Ling. “The share price trades closely to the semiconductor cycle, and we believe there will be a further rerating of its valuation multiple as the cycle begins to pick up, driven by demand for new technology.”

AEM provides handling and test solutions to some of the most advanced manufacturers who operate in the 5G economy. Its clients include manufacturers of microprocessors, high-speed communications, Internet of Things devices, and solar cells.

For 9MFY2019 ended September, the group saw its earnings jump 23.8% to $36 million, as revenue climbed 5.2% to $234.5 million.

“As technology nodes shrink, longer test times are required to perform more complex tests. In addition, systems and devices used in safety-critical markets… will require more stringent system-level tests. These would lead to higher demand for test handlers,” Ling says.

Notably, the analyst says AEM can expect to see growth driven by its key customer, Intel.

“Intel has guided for a record-high capex of US$16 billion ($21.8 billion) in FY2019 on the back of developments in new technology,” Ling says. “This should drive demand for test handlers, where AEM is believed to be the sole supplier.”

Another counter that market watchers believe is poised to thrive on the semiconductor industry upturn is UMS Holdings.

Maybank Kim Eng Research is initiating coverage on UMS Holdings with a “buy” recommendation and a price target of $1.13, representing a total upside of 22% for the stock.

“UMS is in the early innings of an earnings upcycle, and has traded at such levels or higher in previous similar episodes,” analyst Lai Gene Lih says in a Dec 4 report.

In particular, the brokerage views the company’s key customer, Applied Materials, as a key determinant in the company’s ability to ride the market recovery. Noting that AMAT alone accounts for some 90% of the group’s revenue, Lai highlights that benefits are in the pipelines.

“[AMAT] sees semiconductor equipment spending recovery in FY2020E. This is driven by sustained investments from logic and foundry customers, followed by a recovery of equipment spending from memory customers in 2020 — led first by NAND, and subsequently DRAM,” says Lai.

In addition to being a strategic partner to a market leader, UMS is also poised to reap handsome rewards from its diversification strategy. The group has recently raised its stake in precision engineering firm JEP Holdings to 39%, which Lai calls “most promising”.

The company is also exposed to chemical engineering solutions via a 51% stake in Kalf Engineering, and has integrated part of its upstream process with a 70% stake in Starke Singapore. —