Detection Technology - The group will grow, EBIT yet limited
DT reports its Q2 results on Thursday, July 3rd. We expect the medical business to bring strong revenue growth while Q2 EBIT is yet limited by cost inflation and stagnant market of China. With moderate valuation, we raise our rating to BUY (HOLD). With adjusted estimates, TP is set at 16.0 (17.5).
Strong MBU, EBIT limited by several factors
Despite the continued strength of the medical markets, the security market in China has shown stagnation following the reopening of COVID-19 restrictions. In addition, the inventory corrections seen in Q1 are expected to continue also in Q2 among industrial customers. For Q2, we project a solid 11% y/y growth in group net sales, reaching EUR 25.2 million, primarily driven by MBU. Meanwhile, SBU and IBU are expected to remain relatively flat compared to the comparison figures, mainly due to soft market demand. Our view is that Q2 EBIT is yet limited by soft net sales development in SBU and IBU as well as cost inflation stemming from fixed costs. Our EBIT estimate for Q2 amounts to EUR 1.6m. Third quarter may pose additional challenges as DT faces a strong comparison period in the medical sector. However, we remain optimistic about Q4, with a promising outlook for security demand as we anticipate an increase in TSA aviation orders towards the year-end.
Haobo acquisition to bring new growth opportunities
The acquisition of Haobo Imaging was confirmed at the beginning of July, and has no impact on DT’s Q2 figures yet. Haobo’s revenue impact is yet small but the integration of new technologies into DT's portfolio has the potential to unlock substantial growth potential also within medical customers. Over the next few years, DT plans to make investments in Haobo to foster its growth, aiming to achieve positive EBIT by 2025. Haobo caters mostly to industrial customers, and we foresee the company accelerating IBU’s H2’23 growth.
Low market expectations for the next two years
Although our EBIT estimates decreased by over 10%, DT’s valuation doesn’t appear very expensive. By considering 24E EBIT, DT trades below its historical valuation, and the discount to its peer group is notable. We adjust our TP to EUR 16.0 (17.5) with estimate adjustments. However, moderate valuation and expected earnings growth provides us a spot to take a positive view in DT. Our rating is now BUY (HOLD).
Despite the continued strength of the medical markets, the security market in China has shown stagnation following the reopening of COVID-19 restrictions. In addition, the inventory corrections seen in Q1 are expected to continue also in Q2 among industrial customers. For Q2, we project a solid 11% y/y growth in group net sales, reaching EUR 25.2 million, primarily driven by MBU. Meanwhile, SBU and IBU are expected to remain relatively flat compared to the comparison figures, mainly due to soft market demand. Our view is that Q2 EBIT is yet limited by soft net sales development in SBU and IBU as well as cost inflation stemming from fixed costs. Our EBIT estimate for Q2 amounts to EUR 1.6m. Third quarter may pose additional challenges as DT faces a strong comparison period in the medical sector. However, we remain optimistic about Q4, with a promising outlook for security demand as we anticipate an increase in TSA aviation orders towards the year-end.
Haobo acquisition to bring new growth opportunities
The acquisition of Haobo Imaging was confirmed at the beginning of July, and has no impact on DT’s Q2 figures yet. Haobo’s revenue impact is yet small but the integration of new technologies into DT's portfolio has the potential to unlock substantial growth potential also within medical customers. Over the next few years, DT plans to make investments in Haobo to foster its growth, aiming to achieve positive EBIT by 2025. Haobo caters mostly to industrial customers, and we foresee the company accelerating IBU’s H2’23 growth.
Low market expectations for the next two years
Although our EBIT estimates decreased by over 10%, DT’s valuation doesn’t appear very expensive. By considering 24E EBIT, DT trades below its historical valuation, and the discount to its peer group is notable. We adjust our TP to EUR 16.0 (17.5) with estimate adjustments. However, moderate valuation and expected earnings growth provides us a spot to take a positive view in DT. Our rating is now BUY (HOLD).