Hi everyone its Amirah again, welcome back.
Today, we have two picks for this week, both of which we have published reports for last week.
The first one we'll look at is AEM Holdings, a key supplier of testing machines for Intel's
chip manufacturing process. As most of you may know, Intel is a dominant player in the semiconductor field,
with it's micro processors used in laptops desktops and even servers in data centers that's powering our future economy.
Basically, we think it's one of the better performers amidst it's the weak manufacturing sentiment in Singapore and weak global semiconductor sales data.
Since our report last Friday, the share price has actually went up about 5% as you can see here from the intraday chart,
but we believe that it is still trading at a deep discount relative to its test equipment competitors.
Our current target price is conservatively set at S$1.34, as we think that next year could potentially be a tough year for
AEM, but we're seeing tailwinds from multiple pilot contracts that AEM has signed with various major companies and
there is also a good likelihood of a sales rebound with its key customer in 2021.
So we see potential for another about 22% upside to S$1.54, if we are basing valuations on 2021 earnings forecasts.
Our next pick is actually China Sunsine Chemicals Holdings which we re-initiated coverage on
with a target price of S$1.40 and an overweight rating for its dominant position
in China's rubber chemical industry and it's attractive valuations.
Against the backdrop of ongoing market consolidation in the rubber chemical industry in China,
we expect Sunsine to remain the primary market leader in terms of production.
The price of Sunsine's key raw material, Aniline, is trading at the cyclical bottom and has unfortunately
negatively impacted the industry in the past year, but
thinning profit margins will eventually drive out high cost producers allowing Sunsine to shine
as aniline prices recover and lift rubber chemical prices.
On top of that, Sunsine is also not sitting still and is in a position of strength to continuously expand
while the industry consolidates. It has plans to ramp up capacity which includes
20,000 tons of TBBS accelerator and 60,000 tons of insoluble sulphur.
We believe that the company could also expedite these expansion projects as it has more than sufficient cash
and internal funding while its competitors' expansions have to rely on increasingly challenging
and time-consuming external fundraising due to China's tightening credit policies.
Overall, we are optimistic on Sunsine's strong profitability and financial position,
it's currently only trading at 6x 2019 P/E which we believe really
undervalues the group's dominant position and future growth prospects.
So that's all from me today, if you're interested in either report check them out
I'll link them down below or you can check out our LinkedIn page as well at KGI Securities (Singapore).
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