Walking out from the watch-list - NRA Capital

 Initiate coverage with a fair value of S$0.128. This is based on 8x FY12 PER, a discount to its global peer comparison of 9.2x. Our fair value also translates to an implied 1x FY12 PBR, which we believe is reasonable given its 13-14% ROE, healthy balance sheet and revenue growth. Given the 54% upside potential, we initiate coverage with an Overweight rating.

 Less competition for semiconductor equipment makers. AEM is in the core business of design and manufacture of equipment, precision components and organic substrates as well as providing engineering materials and services to the semiconductor sector. After a few rounds of consolidation, we observe the industry is now less competitive as fewer makers have turned into giants such as ASM, KLA-Tencor and Applied Material. Some smaller players have also found their own way after surviving several crises.

 Gartner expects equipment spending to decline 11.6% yoy in 2012. Weak market conditions in the second half of 2011 caused pullbacks in expansion plans throughout the semiconductor manufacturing industry. Gartner expects the investment weakness will continue through the first half of 2012 and will surge in the second half of the year. They base these assumptions on the aggressive spending plans announced by the major semiconductor manufacturers. There is a risk that some capacity expansion plans will slip from the second half of 2012 into 2013.

 Intel increased capital expenditure by 17% yoy in 2012. One of its major customers, Intel, announced recently plans to boost its capital expenditures in 2012 to US$12.5bn. Intel's December quarterly results modestly beat Wall Street's expectations as it faces a tough PC market, and the chipmaker said it was sharply increasing its capital expenditures in an apparent bid to speed up its entry into tablets and smartphones. However, shortages of the components are expected to persist through the first half of 2012 and disrupt PC production after flooding in Thailand.

 Ambition for M& A to achieve step growth. Despite some caution amidst the uncertain business environment, the group remains committed to increase its investments in engineering and core technology development and also pursue M& A opportunities for future growth given its healthy financial and cash positions.

 Removed from SGX Watch-list. Singapore Exchange has given its approval in principle to be removed from the Watch-List with effect from 12 April 2012.