AEM - DBS Research 2023-02-27: Testing Times Ahead - SELL

• AEM (SGX:AWX)'s FY22 revenue of S$870.5m (+54% y-o-y) is slightly above our expectations by 4.8%; exceeds guidance. FY22’s exceptional surge in revenue largely corresponds to the ramp in new generation equipment sales as well as consumables to AEM’s key customer. The higher revenue can also be attributed to consolidation of CEI for the full year in FY22 vs nine months in FY21. AEM also managed to expand its wallet share with its key customer as its solutions could meet the capabilities required by next generation devices.
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• AEM management’s revenue guidance of S$500m for FY23F is significantly below consensus estimates and our expectations of S$704m. Comparatively, FY23F revenue guidance is 43% lower than FY22’s revenue for the following reasons
  1. global slowdown with higher risk of recession
  2. rising interest rates could negatively impact capital expenditure
  3. weaker semiconductor market due to inventory digestion in 1H23 and
  4. high base in FY22 with equipment ramps and pull in at key customer.
• Poor visibility could be the key reason behind management’s conservative outlook, which could give rise to upside surprises.
• Revenues from three new customer wins to more than double in 2023; although insufficient to offset key customer weakness – As at 9M22, revenue contributions from non-key customer and non-CEI business was between 5-10%. AEM’s offerings is on the critical path for the launch of customer’s next generation devices and capability ramps are expected from early FY24. Amid key customer weakness and growing contributions from the new customer wins, the proportionate contribution from Intel is expected to be lower in FY23.
• Inventories increased by ~79% y-o-y from S$205m to S$368m – This was largely due to longer dated, non-cancellable purchase orders with the key customer. The longer dated purchased order backed program amounts to inventories worth S$280m which will be used to support Intel’s ramp needs in the midterm.
• A final divicend of S$0.036 was proposed, bringing AEM's FY22 total dividend to S$0.103, 36% higher than the S$0.076 declared in FY21.

Our Thoughts on AEM

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Above is the excerpt from report by DBS Group Research.
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