Following the substantial decline in share price in 2H22, the stock has already returned to its previous levels, delivering a 25% YTD gain. Such performance was possible because the supply chain-related risk, which initiated the sell-off, is currently in our view relatively low (ca. 5% of 2023E sales at risk). Moreover, the company announced a one-time increase in product pricing of effectively ca. 20%. Nevertheless, despite expected strong y/y growth and inclusion of hikes in our forecasts, we expect VIGO to deliver 2023E revenues at PLN 96.0m (up 43% y/y, down 5% vs. prev.) and adj. net income at PLN 22.5m (vs. PLN 7.2m in 2022E, down 31% vs. prev., with the margin at 23% vs. 11% in 2022E). Our new forecasts arrive to lower sales volumes (compensated by higher pricing), weaker than previously expected performance in the military segment (lack of a large contract from Safran), as well as weaker performance in the semiconductor sector (major orders are likely in our view on the verge of 2023E/24E). The company still possesses a strong project pipeline, but we believe a breakthrough in most cases is more likely in 2H23E+. On our 2023E/24E forecasts, VIGO trades at a P/E of 18.5x/11.2x, which we perceive as neutral for the company with solid revenue/adj. net income 2021- 25E CAGR of 22%/19%, yet substantial CAPEX. We decrease our recommendation to HOLD from BUY, with a new FV of PLN 600.0 (6% upside), down from PLN 660.0.
Pricing increase is a supportive, yet one-time event
Following the weak 2022 with a revenue decline of 6% y/y (affected by a substantial decline in military), we expect the company to deliver strong 43% y/y growth to PLN 96m in 2023E. The major driver will be an increase in detector unitary prices, which we expect to be effectively 18% higher y/y this year. Considering individual segments, we forecast industry to deliver PLN 55m in revenues (up 37% y/y, without signs of a macro-driven slow-down), military at PLN 13m (up 61% y/y, driven by high investment in the Polish Army), transport at PLN 11.5m (up 48% y/y, with a potentially large EUR 2m contract starting this year) and semiconductor materials at PLN 8m (the second epitaxy machine should be operative for nearly a full year). Even though we expect substantial improvement in adjusted net margins in 2023E to 23%, (vs. 11% in 2022E and on average 33% in 2019-21) thanks to increased pricing, effects of scale and OPEX discipline, our new forecast is substantially below previous estimates of an adjusted net margin of 32%.
Breakthrough contract for now out of sight
Out of the three major projects in the R&D pipeline (IR array, biomedical sensor and IR in automotive), we believe signing a framework production contract for IR array is the most possible to happen in the coming months, whereas for the remaining two projects we expect a potential breakthrough rather in 2H23/2024E. All three contracts, if successful, are likely to effectively support results starting in 2024E/25E and we include them in our forecast, adjusted by a probability ratio (we expect VIGO’s accelerated revenue growth rate at 30% y/y in 2025E to PLN 158m).
Analyst
Michal Wojciechowski
Michal.Wojciechowski@ipopema.pl
+ 48 22 236 92 69
GPW’s Analytical Coverage Support Programme 3.0
