Detection Technology - The focus shifts towards H2
IBU grew very strongly
In Q1, IBU faced a revenue growth of 45.2% y/y, the BU’s topline totaling EUR 3.5m (Evli: EUR 2.9m). The growth was driven by all IBU’s main segments: imaging solutions for the food, pharmaceutical, and mining industries. The BU was forced to postpone some of its deliveries due to low component availability. MBU’s growth drivers remained unchanged: Q1 revenue growth was mainly driven by CT applications in both developing and developed countries. Lockdowns in China and low component availability slowed down the development of MBU’s sales. MBU grew by 4.5% y/y to EUR 10.5m (Evli: EUR 10.9m). SBU’s Q1 revenue amounted to EUR 6.3m and the growth of 7.5% y/y was mainly driven by non-aviation applications. In total, group net sales grew by 10.9% y/y to EUR 20.3m (Evli: EUR 21.1m).
Increased R&D investments and material costs cut margins
DT invested more heavily into R&D to mitigate the impacts of the component shortage. R&D costs were 14.5% of net sales in Q1 (Q1’21: 13.1%). In addition, component purchases made in spot markets increased DT’s material costs somewhat. Q1 EBIT faced a slight improvement from the comparison period and amounted to EUR 1.5m (7.4% margin). Earnings per share amounted to EUR 0.09 (Evli: EUR 0.08). As soon as the component availability improves, either through the product modernization program or increase of market supply, we expect the scalability to kick in. In history, DT has generated EBIT margins around 20%, but we find those levels far fetch nowadays as, at that time, the organization was quite thin compared to today. Our 25E EBIT margin estimate is ~17%.
The demand for detectors will continue strong
The demand DT faces is strong, and all factors indicate the trend to continue. With new order allocations, the TSA’s CT upgrade program has seen progression. However, in our understanding, the topline impact in 2022 is more moderate while most of the orders will be delivered in the coming years. The component availability is still low and a significant part of Q1 deliveries was postponed. In Q1, DT focused on the modification of its product portfolio so that the most rarely available components can be replaced by the components with more reliable availability. According to the company, the program starts to impact the figures in early Q3 and increasingly in Q4. With the program, the company achieves better availability and more reliable deliveries as well as the need of purchasing less spot-priced components. With the component availability improving in H2 through the product modification program, we expect the strong demand to actualize in H2.
HOLD with a target price of EUR 22.5
We slightly upgraded our topline estimates reflecting strong outlook in H2’22 while our 22E EBIT estimate saw only a minor negative revision due to increased cost pressures. In 2022, we expect group revenue to grow by 14.7% y/y to EUR 103m and EBIT to amount to EUR 14.8m (14.4% margin). In Q2, we expect, in line with DT’s outlook, MBU to face a slight decline of 2.7% y/y, net sales totaling EUR 13.2m. In our estimates, SBU and IBU will grow more strongly. SBU’s Q2 revenue amounts to EUR 8.8m, representing a growth of 27.9% y/y while IBU also sees strong growth of 33.8% y/y, net sales totaling EUR 4.1m. Group level Q2 topline amounts to EUR 26.1m (+11% y/y). Driven by increased material costs and R&D investments, we expect OPEX to grow and EBIT to amount to EUR 3.4m (13% margin) in Q2. DT’s valuation appears again quite elevated. With our 2022 estimates, the company trades with a premium to its peers, but in 2023 DT’s valuation drops near the peer group. In our view, DT’s business still faces short-term uncertainty given low component availability and lockdowns in China, country that is crucial to DT in terms of supply chain, production, and sales. We retain our HOLD rating and TP of EUR 22.5.