Macroeconomic Conditions Could Push Companies To Search For Technologies Provided By VIGO
Aa
Share
On the way to mass applications
In 1H22 VIGO delivered PLN 32m in revenues (flat y/y, 40% of its annual target) and we expect it to reach PLN 77m in revenues in the full year, up 8% y/y. However, excluding the military segment (affected by the timing of contracts), revenues have increased in 1H22 by 30% y/y, which was achieved thanks to strong sales to industry (+44% y/y), and despite the clean room reconstruction limiting production capacity and starting of an economic slowdown. Moreover, unfavorable macroeconomic conditions could push companies to search for efficiency and increase investments in smart technologies like those provided by VIGO. We also believe that weak performance of the military segment is merely a transitional result of the longer decision-making process of public clients, yet increased spending on smart military equipment is currently a base case. Last but not least, VIGO is presently working on three EUR 10m plus projects which could reach production in the mid-term and provide a significant boost for the company earnings. On our 2022/23E forecasts, VIGO trades at an attractive P/E of 20.4/12.4x. We maintain our BUY recommendation, but decrease our FV to PLN 660.0 (19% upside potential) due to, among others, higher RFR and premium risk.
2022-23E outlook the next contract from Safran and new applications
We expect the industry sector to remain the major driver for revenue growth this year, with expected sales at PLN 42m, up 36% y/y (the management still does not see any recession-driven slowdown in new orders). We expect relatively weaker performance of the military segment with PLN 12m in revenues (down 48% y/y), and moderate result of semiconductor materials segment at PLN 7.8m (vs. PLN 4.3m year ago). In 2023E we expect VIGO to deliver a significant improvement in the military segment (PLN 19m in revenues, up 55% y/y), driven by a new contract from Safran, as well as strong performance of industry (PLN 52m, up 24% y/y) and materials for photonics at PLN 13m (driven by first significant contracts). Moreover, multiple key new applications are expected to enter production in 2023 as well. In total we forecast VIGO to reach PLN 77m/102m in revenues in 2022/23E (down 3%/5% vs. our previous forecasts) and PLN 20.0m/32.6m in norm. net income in those years with a norm. net margin of 26%/32% (vs. previously expected 36%). Significant decline in profitability this year is likely due to overall inflationary pressure on operating costs, which in our view in 2023 will be offset by significant upscale in production and catalogue price adjustments.
Mid-term outlook - Potential large-scale and mass-market contracts
Currently VIGO is working on at least three large-scale contracts, with a potential for annual revenues of EUR 10m or more. Among those we highlight SWIR III-V detector in biomedicine (demonstrator phase), IR array in military and MWIR III-V detector in automotive (both at product concept phase). The management estimates that these products could be introduced to the market in 2023-24. In our forecasts, we conservatively assume their chance for reaching production at respectively 15%/33%/20%, with initial deliveries in 2024E/24E/25E.
Figure 1. Summary of financial data (PLN m)
VIGO PHOTONICS
BUY
FV PLN 660.0 from PLN 750.0
19% upside
Price as of 23 August 2022 PLN 556.0
Maintained
Analyst: Michał Wojciechowski, Michal.Wojciechowski@ipopema.pl
GPW’s Analytical Coverage Support Programme 3.0
