Compiled by Navin Sregantan
AEM HOLDINGS | BUY (MAINTAINED)
AUG 14 CLOSE: $1.11
TARGET PRICE: $1.40
Maybank Kim Eng, Aug 14
Q2 bottom line rose 65 per cent year-on-year to $15.7 million, largely driven by HDMT and STHI test handler (TH) sales to its key customer. First-half bottom line accounts for 65 per cent of our FY2019 forecast, surpassing our expectations.
As system-level tests gain significance for its customer, we see a possibility of higher FY2019 revenue guidance from AEM.
Based on the latest updates, production ramp-ups for AMPS equipment for its memory customer, the hybrid project for its key customer, and the optical fibre test solution for Huawei are on track.
The latter two contributions are not yet in our estimates due to insufficient visibility.
Given the importance of maintaining technology and market leadership for its key customer, the latter may aggressively push towards 7nm chips by 2021.
This may result in front-loading of FY2021 HDMT orders to FY2020.
Because of AEM's small size relative to its customer's capex budget, we think constraints for HDMT TH orders are unlikely to be a lack of financial resources.
Instead, we believe a severe demand decline for the customer's chips, possibly as a result of a macroeconomic shock, is a key risk, as this could prompt the customer to delay equipment orders due to slack capacity.
HRNETGROUP | HOLD (MAINTAINED)
AUG 14 CLOSE: $0.63
TARGET PRICE: $0.75
DBS Equity Research, Aug 14
We reduced our core FY19 to FY20 earnings estimates for HRNetGroup by 3 to 7 per cent as we factor in weaker GDP outlook for Singapore, disruptions in Hong Kong from protests, declining number of job placements, lower productive headcount, and lower gross profit per contractor employee.
Our concern stems mainly from Singapore, which accounts for more than half of the group's gross profits. We anticipate that the headwinds in Singapore will likely weigh on earnings growth.
Although valuations seem compelling, we believe negative macro tailwinds and a lack of earnings visibility would continue to weigh on the stock.
The group is sitting on about $274 million in cash (as at June 30), representing around 41 per cent of its market capitalisation. Deployment of funds towards inorganic as well as earnings-accretive acquisitions could re-rate the counter.
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