IKT

espeset
25.03.2019 kl 17:47 4647

Ikke alle som ser "svart" på kitron ihvertfall :-)


New goals for 2025 set in CMD

Kitron held Capital Markets Day (CMD) on March 21st. CMD presentation confirmed that the company is well on track to reach its targets for 2020 and provided new information about goals for 2025. The new ambition is to achieve revenues of NOK 5 billion with an EBIT margin of 7% by 2025. The goal implies stronger growth than previously expected by us and we believe that it is achievable, therefore we raised our estimates. We keep our BUY recommendation at a higher TP of NOK 11/sh (NOK 10/sh previously) as we believe that the current share price does not reflect the strong earnings growth potential .

Strong top line growth guided, efficiency metrics targets to be maintained

The new guidance suggests that Kitron should reach revenues of NOK 5bn by 2025 (implying CAGR of around 10%, with possible upside from M&A) with an EBIT margin of 7% (same as guided for 2020). Efficiency metrics are expected to be maintained at 2020 guidance levels: cash conversion cycle target of 50 days, ROOC of 25% and net working capital to revenue ratio of 20%. The management has a structured path to achieve these targets: acquisition in the U.S., plans for a new facility in Poland and expansion in China ought to improve the capacity, while investments in automation and digitalization along with other systematic improvements are expected to ensure above-industry-average margins. This, however, comes at a cost of increased CAPEX guidance of approximately 3% of annual revenue (a range of 2-3% guided previously and 2.5% assumed by us). In general, the most significant efficiency improvements are expected to be implemented by 2020, while the focus in the later years will be more on the expansion and refinement of the built strategy.

Ongoing EMS industry consolidation creates M&A opportunities

It was indicated that there is an ongoing consolidation in the Electronics Manufacturing Services (EMS) industry, where smaller players are being acquired to achieve economies of scale or drop out of the business, as production requirements are becoming more demanding. This, however, is positive for Kitron, because the more complex production gets, the more likely it is to win orders. Also, this situation creates more M&A opportunities for Kitron, which may add to the upside of the guided figures.

Component availability issues may ease soon

2018 continued to be a challenging year for many companies involved in the Electronics Manufacturing Services business as the market has been experiencing a shortage of electronic components. Nevertheless, interests of Kitron’s customers were protected by a temporary build-up of component inventory. In the CMD presentation it was commented that Kitron has ended exceptional procurement of components, except for specific products, as the allocation issues are stabilizing and the number of shortages is decreasing. This reduces the risk of lower efficiency going forward and solidifies 2020 goals.

Buy recommendation reiterated at a higher TP

We see Kitron being well positioned in the EMS market in the face of industry trends and we believe that the company will continue to successfully improve its operations and should achieve the stated goals. Following the CMD, we lifted our long term top line estimates and maintain EBIT margin expectations. We continue to see the stock being undervalued and reiterate BUY recommendation at a higher TP of NOK 11/sh (NOK 10/sh previously).

Analyst

Rytis Mikelionis

Redigert 25.03.2019 kl 17:47

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