Detection Technology - Slight dent in growth story
Q4 result missed clearly expectations, FY’19 growth decent
DT’s Q4 net sales amounted to EUR 25m (-2.5% y/y) vs. EUR 27.7m/27.4m Evli/consensus estimates. Q4 EBIT was EUR 3.2m (12.8% margin) vs. EUR 5.1m/4.7m Evli/cons. R&D costs amounted to EUR 2.66m or 10.6% of net sales. Dividend proposal is 0.38 (0.38 Evli / 0.39 cons.). SBU had net sales of EUR 16.4m vs. EUR 19m Evli estimate. SBU sales grew 6% y/y, but growth was affected by temporarily lower sales in CT products and delayed deliveries to one key customer. MBU delivered net sales of EUR 8.6m which was in line with our estimate of EUR 8.7m. Net sales of MBU decreased by -15.4% y/y due to continued softness in the medical imaging market. In FY’19, DT posted +9.2% growth (+5.5% in FY’18), with 16.6% EBIT-margin (19.7% in FY’18) hampered by increased costs and slowdown in MBU.
Growth to continue in 2020, but circumstances lower visibility
As usual, the visibility in DT’s case is quite low. DT estimates annual growth to remain at previous 5-6% level in all market segments in 2020, but coronavirus may have a temporary adverse impact on growth in H1. DT also estimates the temporary slowdown in the global medical CT market to continue in Q1, and the situation to normalize at the end of 2020. DT still sees H1 growth despite headwinds. DT expects significant sales contribution in 2020E from recently launched Aurora product family for SBU as well as roughly 1 MEUR contribution from X-Panel on MBU side.
Updated financial targets puts slight dent in growth story
DT updated its medium-term financial targets; DT now aims to grow at least 10% (prev. 15%) and achieve EBIT-margin at or above 15% (no change) in medium term. DT announced in Q2’19 its updated strategy until 2025; the new strategic target is to be the growth leader in digital x-ray imaging detector solutions and a significant player in other technologies and applications where the company sees good business opportunities. DT estimates that the market for digital x-ray imaging detector solutions will be around EUR 3 billion in 2025. DT’s previous strategy until 2020 was based on being the leader in computed tomography and line-scan x-ray detectors and solutions. The total market, as per the company's previous strategy, is estimated to be around EUR 700 million in 2020, of which DT has roughly 20% share. Despite a larger market scope, DT sees moderating the sales growth targets as prudent as growth becomes more difficult as a +100 MEUR revenue company. We’ve emphasized the growth story in our investment case based on the strong growth drivers, especially in China, where Beijing’s “Made in China 2025” initiative has led to double digit growth rates for many local Chinese OEM’s that are DT’s clients. Although market drivers remain intact, we lower our sales growth estimates for 2020-21E from 14-15% to 10-12.5% based on the updated financial targets.
Estimates cut, we maintain target price of EUR 24
Based on the Q4 report and lowered longer-term sales growth targets, we have cut our sales estimates 7-9% and our EBIT estimates 17-20% for 2020-21E. We now estimate DT to grow 10% and 12.5% in 2020-21E (prev.14-15%). We estimate 2020E EBIT to grow 12% to 19 MEUR (17% EBIT margin) as SBU’s Aurora volumes ramp-up in H2 and MBU returns to growth mode after temporary slowdown. On our new estimates, DT is trading at ‘20E 17.2x EV/EBIT and 23.6x P/E, which is broadly in line with our peer group. Despite our estimates cut, we remain, as noted in our preview comment, positive towards the longer-term investment case as we continue to see DT executing well on a growth market with strong drivers. We do not however currently have enough conviction in our estimates; therefore, we maintain our target price at EUR 24, recommendation is now HOLD (prev. BUY).