Vaisala - Leosphere and order intake reflect on W&E estimates

In Q3’18, Weather and Environment (W&E) order intake was y/y lower for the second consecutive quarter, partly due to the absence of large orders. Vaisala maintained its cautious view on the Chinese demand for traditional weather observation solutions during 2018. We have updated our estimates particularly for W&E. On our estimates, the positive net sales and EBIT margin impact of the recently acquired Leosphere is partly offset by more cautious growth estimates for the rest of W&E. We maintain HOLD rating with a TP EUR 19 (21).

Timing of W&E projects caused some surprises

After the Q2’18 result, Vaisala estimated that the high share of project revenue will negatively affect W&E’s profitability during H2’18. However, Q3’18 turned out to be an exception: the timing of W&E projects resulted in weaker net sales but supported gross margin and EBIT margin, as the share of typically low margin project deliveries fell to 25% (37% in Q3’17) in W&E. According to Vaisala, project gross margins also happened to be better y/y.

Low W&E order intake continued in Q3’18

In Q3’18, W&E order intake amounted to 48.7 MEUR (-33% y/y) which was the second consecutive weak quarter, even when we adjust for the 6.3 MEUR Vietnamese contract order in Q3’17. According to Vaisala, the demand for W&E products in China has not changed significantly from Q2’18 to Q3’18. The company repeated its view that the Chinese demand for traditional weather observation equipment is expected to decline moderately y/y in 2018. Vaisala sees that the main Chinese customer for traditional weather stations may have saturated its network, which could explain the weaker demand in 2018. Meanwhile, Vaisala sees that sales to Chinese airports are a growing business.

HOLD maintained with a TP of EUR 19 (21) per share

We have updated our estimates, which now reflect the acquired Leosphere. In addition, we lower W&E sales growth estimates for other segments due to the continued weak development in order intake and continued cautiousness regarding the Chinese market. In our estimates the weak W&E order intake partly offsets the estimated growth boost from Leosphere. Our 2019E estimates and peer EV/EBIT multiples imply a value of 18.8 EUR per share when we adjust for Vaisala’s net debt. We maintain HOLD rating with a target price of EUR 19 (21) per share.

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