Detection Technology |

• Group results: DT’s Q1 net sales grew by 12% y/y to EUR 22.8m, roughly in line with our expectations (22.5/22.8m Evli/cons.). Growth was good in security and medical segments while IBU in fact declined. With lower volumes, unfavorable sales mix and higher material costs due to the usage of spot components, adj. EBIT fell short of our expectations. Adj. EBIT amounted to EUR 1.5m (1.9/1.7m Evli/cons.), reflecting a margin of 6.5%. Adj. EPS amounted to EUR 0.06 (0.11/0.1 Evli/cons.), below our expectations.
• Medical (MBU): MBU faced strong demand and net sales grew by 14.6% y/y to EUR 12m, roughly in line with our expectations (Evli: 11.7m). Growth was good in high-tier CT solutions in both developing and developed markets.
• Security (SBU): SBU grew by 16.2% y/y to EUR 7.3m, in line with our estimates (Evli: 7.2m). Strong growth was driven by urban security while aviation was yet quite sluggish. However, TSA has announced new significant CT equipment order which provides potential growth for DT during next few years.
• Industrial (IBU): compared to growth seen previously, IBU came in soft as expected. IBU’s Q1 net sales declined by 3% y/y to EUR 3.4m, below our expectations (Evli: 3.6m). DT expects demand disruptions (customer inventory reductions) seen in Q1 to fade away in H2.
• Outlook: DT expects double-digit sales growth and improving quarterly EBIT. DT sees SBU and MBU growing over 10% while IBU is expected to grow in Q2. Group revenue expected to face double-digit growth in H1. Haobo acquisition expected to have a positive impact on sales in H2.

Estimating a slower start to the year
Ahead of the Q1 result, our Q1 estimates saw a reasonable decrease due to a slower than expected start to the year. In our view, IBU is facing softer than previously expected demand due to OEMs’ overstocking which has temporarily decelerated growth. Additionally, the security market has been slower than expected. In our view, the state of medical markets continues as steady. Overall, we estimate Q1 group net sales to reach EUR 22.5m with 10.6% y/y growth. With decreased volumes, our Q1 EBIT estimate also saw a moderate decline. We expect Q1 EBIT to land at EUR 1.9m, reflecting an 8.6% margin.

Demand set to improve during Q2 and H2
We foresee the growth prospects for DT as strong. Considering China’s increased aviation passenger volumes and low investments in aviation security due to the pandemic lockdowns, the demand for SBU has significant potential to improve. In addition, TSA’s new orders should start to generate revenue in the coming year(s). OEMs have also reported on new security CT renewals in Europe. Despite soft Q1, we expect IBU to score solid growth figures in 2023. In our view, the medical market continues to deliver steady growth and with DT’s technology expansion, we foresee MBU expanding its market share during the next few years. In total, we expect revenue growth of 14.1% in 2023. In our view, DT’s scalable business model begins to lever with volumes clearly above EUR 100m. With that, we expect the 23E EBIT margin to double from that of the previous year to 12.5%

Valuation for 2024 not demanding
With our revised estimates, DT trades with 23-24E EV/EBIT multiples of 18-13x. With expected EBIT growth, 24E valuation seems not challenging. With a decent increase in our EBIT estimates and a minor decline in share price since our last update, we upgrade our rating to HOLD (SELL) and adjust TP to EUR 17.5 (16.5) ahead of the Q1 result.

• Haobo focuses on X-ray flat panel detectors, offering a-Si, IGZO, and CMOS technologies. With the acquisition, DT taps into TFT flat panel (a-Si & IGZO) markets which almost doubles DT’s addressable market size to EUR 3.1bn (2025). The main application for TFT flat panels is in medical X-ray imaging, and there is also growing demand in industrial and veterinary.
• While DT already has offering in high-end flat panel imaging with CMOS technology, with the acquisition of Haobo the company broadens its flat panel offering into lower price point detectors.
• Haobo’s customer base centralizes in the industrial segment while DT has the muscles to monetize the technology for its existing medical customer base. However, positive EBIT is expected not until 2025 due to the conservativity of medical customers.
• Haobo's enterprise value amounts to EUR 14m and net sales were EUR 3.0m in 2022. EV/Sales 4.7x valuation implies the strategic value of the acquisition with DT mainly acquiring technology and capabilities. The acquisition will be financed with existing cash and a new term loan. In addition, DT has agreed on an increase in the existing revolving credit line to finance growth-enabling investments.
• DT will acquire 90% of the shares in Haobo from its founders and main owner. The founders and management will continue to hold 10% of the shares. DT has agreed on an option to acquire the shares of the Haobo management when certain performance targets are met. Closing is expected by the end of June 2023.
• In our view, the acquisition offers DT new opportunities in medical markets while we also foresee the growth base in industrial markets to further accelerate. We however foresee the impact materializing during 2024-26.
• For now, we see the acquisition having no significant impact on our near-term estimates. We retain our SELL rating with elevated valuation, and TP of EUR 16.5 with estimates intact.

• Q4 group result: net sales grew by 14.1% y/y to EUR 28.2m, approx. in line with our and cons. estimates (24.7m/28.3m Evli/cons.). The growth was driven by strong demand for industrial and security solutions, while medical BU saw some softness during the period. EBIT of EUR 2.8m came in above our and cons. estimates (2.5m/2.6m Evli/cons.), but clearly below that of the comparison period. EBIT was negatively impacted by cost inflation arising from spot-component purchases, R&D, and logistics as well as personnel expenses. EBIT margin was 9.9%. EPS accounted for EUR 0.16, beating our expectations (0.13/0.15 Evli/cons.).
• Medical (MBU): mainly driven by softer market and supply chain issues, MBU’s net sales decreased by 6.6% y/y to EUR 12.7m (Evli: 13.5m). According to the company’s management, the underlying long-term demand outlook for MBU is positive.
• Security (SBU): with strong underlying demand for CT and line-scan security equipment, SBU’s net sales grew by 41% y/y to EUR 10.9m, topping our expectations (Evli: 9.8m). DT gained new customers during the period.
• Industrial (IBU): IBU’s net sales grew by 34.5% to EUR 4.6m, beating our estimates (Evli: 4.1m). The strong performance was supported by improved delivery capabilities and new customers gained during 2022.
• The BoD proposes a DPS of EUR 0.20 (0.19/0.21 Evli/cons.) for the fiscal year 2022.
• Outlook: DT expects group net sales and all its BUs to grow by double-digits in Q1 and H1’23. Outlook for medical solutions came in above our expectations, forcing some upward pressure on our 2023 estimates. DT anticipates not achieving its profitability target in 2023 yet, but says it’s on its way toward an EBIT margin of 15%. Long-term targets intact: at least 10% annual growth and 15% EBIT margin.

Margins under powerful pressure despite solid growth
After soft Q2 DT delivered solid growth figures with SBU and MBU growing by double-digits while IBU’s low single-digit growth was restricted by a very strong comparison period. Group net sales increased by 17.5% y/y and amounted to EUR 27.3m (Evli: 27.1m). Q3 growth was supported by solid demand for medical CT devices, postponed Q2 deliveries, and strong aviation security sales. Despite strong growth, profitability was weak due to elevated material, logistics, and R&D costs. In addition, DT made EUR 1.3m provision due to the credit issues of its North American customer which eventually deteriorated DT’s profits further. Q3 EBIT accounted for EUR 0.6m (2.3% margin) which fell significantly short of our expectations (Evli: 3.8m).

Outlook implies growth to continue
The outlook for security seems bright. Aviation CT equipment upgrades have proceeded both in the US and Europe. Visibility to SBU’s demand continues far but medical OEMs have indicated market growth slowing down. In addition, visibility to industrial demand is somewhat foggy. In total, we expect DT to show double-digit growth both in 2022 and 2023. With spot-component purchases diminishing and additional R&D projects ending, we see DT’s profitability improving significantly. The company guides double-digit growth for Q4’22 and Q1’23 in all its business units.

Valuation neutral with our revised estimates
We made some minor downward adjustments to our 2023-24 estimates considering recent news. DT is currently trading approx. in line with its peers, and we see the valuation as not challenging. Security business provides visibility but uncertainty concerning medical growth and general downward economic development keeps us cautious. We retain our HOLD-rating and adjust TP to EUR 16.5 (prev. 17.0).

• Group results: net sales grew by 17.5% y/y to 27.3 and was in line with our and market estimates (27.1/27.2m Evli/cons.). Component shortage restricted DT’s growth in all its business segments. Adj. EBIT was a disappointment, amounting to EUR 0.6m (3.8/3.6m Evli/cons.). Adj. EBIT margin was 2.3%. With low profitability also Q3 EPS of EUR 0.05 fell short of our and market estimates (0.20/0.20 Evli/cons.).
• Component shortage was present, and DT continued its sourcing of more expensive spot-components. Logistics costs were up, and the product modification project kept R&D costs elevated. In addition, a one-time provision worth EUR 1.3m had a significant impact on DT’s profitability. Component availability is expected to improve, and DT sees its profitability improving in Q4.
• Medical (MBU) grew by 24% y/y to EUR 14.8m, beating our expectations (Evli: 13.9m). The growth was driven by strong demand for CT-devices. In addition, postponed deliveries from Q2 supported medical growth in Q3.
• Security (SBU) increased by 14.6% y/y to EUR 8.5 and was below our expectations (Evli: 9.3m). Growth was driven by increased demand for aviation solutions. DT strengthened its position in the US aviation market which is good news considering future growth.
• Industrial (IBU): after a strong comparison period IBU showed y/y growth of 2.8%. Net sales amounted to EUR 3.9m and was in line with our expectations (Evli: 3.9m). Demand in the food segment continued at a good level, and demand increased in mining and NDT applications.
• Outlook: DT expects its group net sales and all business units to grow by double-digits in Q4’22 and Q1’23.

• Group results: Q2 net sales topped our estimates and decreased by 3.3% y/y to EUR 22.8m (22.4/22.5m Evli/cons.). Demand would have allowed for a higher growth rate in sales, but component shortages and temporary setbacks in supply chain postponed sales to Q3. The postponed sales, spot purchases, and increasing logistics and product development costs eroded DT's profitability. Adj. EBIT amounted to EUR 1.2m (1.8/1.8m Evli/cons.), implying an EBIT margin of 5.2%. Q2 EPS amounted to EUR 0.05 (0.09/0.10 Evli/cons.).
• Medical (MBU): In line with DT’s guidance, MBU’s net sales saw a significant y/y decrease of 25.2%, amounting to EUR 10.1m (Evli: 10.6m). Soft development was attributed to the one-off technical problems at two sub-suppliers and challenges of both the company and its customers to acquire critical components.
• Security (SBU): SBU sales came in strong, by showing y/y growth of 25.4%. Net sales amounted to EUR 8.6m (Evli: 8.1m). DT’s customer base widened, and net sales growth was driven by all market segments, also aviation which took a huge hit from the pandemic.
• Industrial (IBU): IBU continued its solid sales development by growing by 29.4% y/y with net sales amounting to EUR 4m (Evli: 3.7m). The growth was driven by all main market segments, especially the food industry.
• Outlook: DT expects to see double-digit growth in Q2 and H2. In Q3, the company expects MBU and SBU to grow with double-digit figures while IBU is expected to grow. Demand for imaging solutions is expected to pick up in all BUs.

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.

• Group results: Q1 net sales grew by 10.9% y/y to EUR 20.3m (EUR 21.1m/21.7m Evli/cons.) driven by all DT’s business units. Operating profit improved and grew by 9% y/y to EUR 1.5m (EUR 1.9m/2.1m Evli/cons.), indicating an EBIT margin of 7.4%. Soft scalability was driven by increased material costs and stronger investments into R&D to tackle the component shortage. Operative cashflow was down 39% y/y, totaling EUR 0.7m. R&D costs were 14.5% of net sales (Q1’21: 13.1%).
• Medical (MBU): medical segment grew by 4.5% y/y to EUR 10.5m (Evli: EUR 10.9m). Growth was strong in CT applications both in developing and developed countries.
• Security (SBU): security experienced an increase of 7.5% y/y, net sales totaling EUR 6.3m (Evli: EUR 7.3m). Despite the demand for aviation solutions has increased significantly, Q1 growth was still driven by applications other than those used in the aviation sector.
• Industrial (IBU): net sales came in strong and grew by 45.2% y/y to 3.5m (Evli: EUR 2.9m). The demand was strong in all IBU’s main segments: imaging solutions for the food, pharmaceutical, and mining industries.
• The company had ongoing project to design product modifications to its entire product portfolio to mitigate the challenges in the availability of special materials and electronic components.
• FY’22 outlook: IBU and SBU to show double-digit growth in Q2 and MBU to decrease in Q2. Group net sales to grow by double-digit figures in Q2, H1 and H2.
  

Clear double-digit growth in expectations 
After great Q4’21, we expect DT to continue strong development in all its business segments: in our estimates, MBU’s Q1 growth pace smoothens (7.8%) due to low availability of components while we expect IBU (19.3%) and SBU (25.2%) to grow significantly from the comparison period. We expect IBU’s freshly won customers to generate new topline growth in Q1. SBU growth is mainly driven by the recovery of the aviation segment. Q1 group topline increases by 15% y/y to EUR 21.1m while EBIT also improves by 39% y/y, driven by increased net sales, amounting to EUR 1.9m (9.2% margin). 

MBU to suffer the most from the component shortage 
In its Q4 review, DT noted that underlying demand remains strong, but low component availability restricts growth, especially in the medical segment. In our understanding, the availability of components used in industrial and partly in security detectors isn’t as limited as in medical applications. In addition, the war in Ukraine and the sanctions set for Russia have affected to semiconductor sector through increased material and production costs. We, however, remain to wait for the company’s comments on its supply chain development before adjusting our estimates. 

HOLD with a target price of EUR 22.5 (26.0)
DT’s current valuation (22E EV/EBIT of 21x) appears quite elevated compared to its peers (22E EV/EBIT of 17x) due to DT’s yet soft profitability. We now focus on emphasizing DT’s 2023 potential as the current year’s development is restricted by bottlenecks of the global supply chain, which we expect to ease during 2023-24. With our new target price, 23E valuation drops near peer median with DT’s earnings improvement. With the current valuation stretched compared to peers, we retain our HOLD-rating and adjust our target price to EUR 22.5 (26.0).

Strong growth but some sales were postponed in H2’21
In Q4’21, underlying demand continued strong and DT saw a topline increase of 24.3% y/y, totaling EUR 24.7m. Driven by strong demand for high-end CT devices and investments in health care, the medical business grew by 24% y/y to EUR 13.6m. IBU continued strong performance in all its segments and with new customers, the segment grew by 21.7% y/y to EUR 3.4m. SBU faced strong growth figures and net sales increased by 26.5% y/y to EUR 7.8m, driven by all segments except aviation. DT’s management noted that over EUR 3m of sales were postponed due to the lack of components. EBIT improved by 26% y/y to EUR 3.0m (12% margin), falling short of the company’s and our expectations. The profitability was lower than expected due to increased fixed costs.

Demand for detectors continues strong
The underlying demand in all BUs continues strong, but component shortages seem to restrict and postpone some of the H1’22 deliveries. Risks regarding component availability have increased, which might in the worst case lead to customer outflow. We have adjusted our estimates, now expecting revenue growth of 13.3% y/y in 2022, driven by a strong performance of SBU (22.1%) and IBU (16.2%), while MBU’s growth pace (7.6%) sees a slight slowdown due to component shortage. We estimate EBIT to improve to EUR 15.0m (14.8%) but fall slightly short of the company’s medium-term target of 15% margin in 2022.

HOLD with a target price of EUR 26 (28)
With our revised estimates, DT is trading above its peer group and we don’t find the premium justified given the uncertainties regarding component availability. In our view, now it’s not the time to increase the position, rather wait for the supply chain issues to ease. We retain our HOLD-rating and adjust TP to EUR 26 (28).

• Group results: Q4 net sales grew by 24% y/y to EUR 24.7m vs. 25.8m/25.6m Evli/cons. Profitability improved and adj. EBIT grew by 28% y/y, totaling EUR 3m (12% margin) vs. 3.9m/3.9m Evli/cons. R&D costs amounted to EUR 2.9m and were 11.8% of net sales (Q4’20: EUR 2.2m, 11.3%).
• Medical (MBU): net sales came in strong and grew by 24% y/y to EUR 13.6m vs. 14.2m (Evli). The growth was driven by investments in healthcare and strong demand for high-end CT devices.
• Security (SBU): the demand picked up and the topline grew by 26.5% y/y to EUR 7.8m vs. 8m (Evli). The growth was seen in all segments except aviation, but the demand for aviation solutions has evolved positively.
• Industrial (IBU): net sales increased by 22% y/y, totaling EUR 3.4m vs. 3.6m (Evli). The demand was strong in DT’s all main IBU segments.
• Dividend proposal: EUR 0.35 (0.38/0.35 Evli/cons.)
• DT reported that the risks of component shortage have increased and the company has started actions to enhance operative efficiency and find other components suppliers.
• FY’22 outlook: demand will continue to be strong in all of the company’s main markets. The company expects double-digit growth in total net sales both in Q1 and Q2’22.
• No changes in medium-term targets: at least 10% net sales growth and an EBIT-margin at or above 15%.

Expecting high double-digit growth
Driven by strong double-digit growth in all BUs, we expect Q4 revenue of EUR 25.8m (cons. 25.6m), meaning an increase of 30.1% y/y. We expect MBU to grow by 30.3% y/y, driven by strong demand for CT-scan devices. We estimate the earlier growth in SBU’s order book to realize and expect topline increase of 30.5% y/y, totaling EUR 8m. With new customerships, we estimate IBU to grow by 28.5% y/y to EUR 3.6m. Despite the issues in the supply chain, we expect the revenue growth to scale and EBIT to improve by 66% y/y to EUR 3.9m (cons. 3.9m).

Strong earnings growth despite the cost pressures
We expect the increased volume of air passengers and the growth of cross-border e-commerce to support the growth in the number of SBU’s orders. We estimate the security market to exceed pre-COVID levels within the next few years. The company and other players expect the component shortage to continue also in 2022. To reach its EBIT-margin target of 15%, the company must be able to enhance operative efficiency and show some pricing power. We expect the company to be able to shift some of the increased costs to customer prices during the new pricing period. Regarding the outlook, we remain waiting for the management's comments on the pace of recovery in the security markets and clarification of the company's earlier guidance for H1’22 (expecting double-digit growth).

HOLD with a target price of EUR 28.0 (30.5)
The fundaments of DT’s business haven’t changed and we made no changes to our estimates ahead of Q4. Market drivers remain bright, but the recovery of aviation still includes some uncertainty in the short-run. With recent market turbulence and depreciation of peer group valuation, we adjust our TP to EUR 28.0 (30.5) and retain our HOLD-rating.

Q3 fell short of our expectations

DT’s Q3 net sales grew by 12.5% y/y to EUR 23.2m (Evli: 21.7% y/y, 25.1m). Healthcare investments continued globally and demand for high-end CT equipment drove the MBU’s growth of 18.8% y/y. IBU scored record sales in Q3 by growing 21.5% y/y and managed to win new strategic customers and projects. Despite challenges in the availability of materials, SBU sales were ultimately positive and the market has taken an upward turn towards growth. SBU grew by 0.2% y/y from a weak comparison period. Adj. EBIT improved by 26.5% to EUR 3.3m (14.1% margin) and was below our estimates (Evli: 3.7m).

We made some adjustments

Despite the weaker Q3 result than expected, the growth outlook has brightened up and the company expects double-digit growth from all of its BUs in Q4. However, the component shortage is postponing revenue through prolonged delivery times and increasing cost pressures that eventually might narrow the margins. After considering such issues, we have decided to adjust our FY’21 and long-term estimates, now expecting FY’21 net sales of EUR 90.9m and an EBIT margin of 12.7%. During 2022-23, we expect DT to grow by 16.3% and 12.9% respectively as well as reach an EBIT margin of 16.3% and 17% respectively.

HOLD with a target price of EUR 30.5 (32.5)

Given the estimate revision, the current target price (EUR 32.5) doesn’t reflect the fair value of DT. On our new target price, the company is still traded with a premium (22E EV/EBIT 11% premium to peer median), but on our view, it’s justified given the brightened outlook and growth potential. We retain our HOLD-rating and adjust TP to EUR 30.5 (32.5).

• Group level results: Q4 net sales grew by 12.5% y/y to EUR 23.2m vs. EUR 25.1m/25.2m Evli/cons. Adj. EBIT grew by 26.5% y/y and amounted to EUR 3.3m (14.1% margin) vs. EUR 3.7m/3.9m Evli/cons. R&D costs totaled to 2.6m and were 11.2% of net sales (Q3’20: EUR 2.3m, 11.1%)
• Medical (MBU): sales growth of the MBU was mainly generated by next-generation CT products and net sales grew by 18.8% y/y, totaling EUR 11.9m (Evli: 35.3% y/y, 13.6m).
• Security (SBU): the normalization of demand has started in all segments, and demand has taken an upward turn also in the aviation. Net sales increased by 0.2% y/y from weak comparison period and amounted to EUR 7.5m (Evli: 7.5% y/y, 8m).
• Industrial (IBU): demand was strong in all of the company’s main segments and net sales grew by 21.5%, totaling EUR 3.8 (Evli: 11.6%, 3.5m).
• Component shortage has been affecting DT’s sales and margins throughout the year and was also postponing product deliveries during 3rd quarter of 2021.
• FY’21 outlook: DT expects the demand to continue strongly both in the medical and industrial applications, and the double-digit growth of the MBU and IBU will be greater in Q4 than in Q3 of 2021. The demand in security applications will improve, and the company expects the SBU to have double-digit growth in net sales in Q4 of 2021. DT expects double-digit growth in its total net sales also in H1 2022.
• No changes in medium-term targets: at least 10% net sales growth and an EBIT margin at or above 15%.

Q2 included some seasonality
The Q2 result was good on a group level, but there were deviations between BUs. The company expected and saw pick-up in SBU’s growth towards the end of the quarter, but with the sluggish performance of aviation SBU’s top line still declined by 11.7% y/y. MBU had a strong quarter and saw a growth of 37% y/y while IBU faced some short-term seasonality and declined by 10.4% y/y. The company grew by 11.4% y/y to EUR 23.5m driven by MBU. The EBIT margin improved from 12.3% to 12.6% y/y and
EBIT ultimately amounted to EUR 3m.

Medical expected to be in the driver’s seat
We expect Q3 net sales to grow from a pretty weak comparison period by 21.7% y/y to EUR 25.1m. We estimate MBU to grow by 35.3% driven by strong demand for CT equipment. We expect IBU to recover from the seasonal decline in Q2 and grow by 11.6% while we expect SBU to reverse the sales decline trend
and grow by 7.5%. We expect EBIT to improve to EUR 3.7m (margin of 14.7%) driven by stronger revenue growth. The component shortage is still tightening the margins as
component prices have increased. To our understanding, the shortage has affected DT’s sales volumes. Depending on the source, the shortage is expected to last at least until H1’22.

HOLD with a target price of EUR 32.5
We have made no changes to our estimates ahead of Q3. With 22E EV/EBIT 24.8x and P/E 33.7x, DT’s premium to peer median is 15% and 25% respectively. The stock is not cheap, but we see long-term potential in the business as the security market growth kicks in and still emerging technologies develop and commercialize. We retain our HOLD-rating and TP of EUR 32.5.

Group results quite in line with our expectations
Detection Technology reported its Q2 results, which were broadly in line with our expectations. Net sales grew 11.5% to EUR 23.5m (EUR 23.8m Evli/cons.). SBU net sales were still in decline but less so than in Q1 and security sales started to grow in late Q2. DT has seen good traction in order intake from its customers, in particular in security CT applications. Quarterly fluctuations saw IBU sales growth turned negative, but the overall market remained stable. MBU continued its strong growth supported by the demand situation in healthcare infrastructure and CT equipment. EBIT In Q2 amounted to EUR 3.0m (EUR 3.0m/3.3m Evli/cons.).

Double-digit growth seen in all BU’s in H2
DT’s business outlook has improved, and double-digit growth is expected in all BU’s in H2. IBU and MBU are expected to grow double-digit in Q3 while SBU is seen to take a turn towards growth in Q3 but demand uncertainty remains at elevated levels. On group level we have made minor upward tweaks to our estimates, expecting growth of 26% in H2. We are somewhat cautious to H2 profitability given the situation with component availability, but still expect improvements due to the higher sales and estimate a H2 EBIT-margin of 14.3%. DT is nearing its 15% target level and a stronger than estimated sales growth could rather easily push margins above the target during the latter half of the year.

HOLD with a target price of EUR 32.5 (30.0)
With the minor estimates revisions and improved H2 outlook and visibility we raise our target price to EUR 32.5 (30.0), valuing DT at 35x 2022 P/E. Valuation is not cheap but DT still exhibits a nice amount of potential in EPS growth considering target and pre-COVID profitability levels. Our rating remains HOLD.

• Q2 result: Q2 net sales amounted to EUR 23.5m (11.5% y/y) vs. EUR 23.8m/23.8m Evli/cons. estimates. Q2 EBIT was EUR 3.0m (12.6% margin) vs. EUR 3.0m/3.3m Evli/cons. R&D costs amounted to EUR 2.6m or 10.9% of net sales (Q2’20: 2.7m, 12.7%).
• Security Business Unit (SBU) net sales decreased 11.7% to EUR 6.9m vs. EUR 7.0m Evli estimate. The security market is recovering slowly, and SBU sales decreased at the beginning of Q2, but took an upward turn at the end of the review period. Detection Technology has received a good number of orders from customers, in particular in security CT applications.
• Industrial Business Unit (IBU) net sales decreased 10.4% to EUR 3.1m vs. EUR 3.4m Evli estimate. IBU sales continue to grow although year-on-year sales decreased due to a quarter-over-quarter fluctuation.
• Medical Business Unit (MBU) net sales increased 37.4% to EUR 13.6m which was broadly in line with our estimate of EUR 13.4m. Investments in healthcare infrastructure, globally and in particular in China, as well as the demand in higher-end CT equipment, boosted sales to grow strongly.
• Detection Technology’s business outlook for the end of the year has improved, and the company expects double-digit growth in all business units in H2.

Q1 started off rather slow
Detection Technology will report its Q2 results next Tuesday on August 3rd. In Q1 net sales in MBU and IBU saw double-digit growth y/y while SBU saw net sales decline with the continued challenging situation in the security market. MBU showed good momentum in sales growth driven by investments in healthcare infrastructure and increased demand for CT applications. Group net sales overall declined 8.0% y/y. Relative profitability increased y/y to a 7.5% operating margin (Q1/20: 5.9%) but remained clearly below pre-COVID levels.

Growth seen to pick up in coming quarters
Detection Technology noted in Q1 that although the beginning of the year was slow, the worst challenges are seen to have been left behind and growth is expected to pick up again during 2021. MBU is seen to grow more in Q2 and H2 than in Q1 while IBU should turn to growth during H2. SBU is seen to head for growth in late Q2 and grow in H2 but demand is characterized by uncertainty. We estimate group net sales of EUR 23.8m for a growth of 12.8% y/y. We expect growth to be driven by MBU (35.4% y/y) and a clearly smaller y/y growth decline in SBU (-10.1% y/y). We expect group operating margins to remain quite on par with previous year levels.

HOLD with a target price of EUR 30.0
We have made no changes to our estimates ahead of Q2. Valuation is quite elevated, with 2022E P/E of ~36x, and growth recovery is still coupled with uncertainty. Potential is however still large, with good market growth expectations. We retain our HOLD-rating with a target price of EUR 30.0.

A slow start to the year

DT’s Q1 result was broadly in line regarding net sales, but EBIT clearly missed ours and consensus expectations, although EBIT improved somewhat y/y. Q1 net sales amounted to EUR 18.3m (-8% y/y) vs. EUR 19.2m/19.2m Evli/consensus estimates. Q1 EBIT was EUR 1.4m (7,5% margin) vs. EUR 2.2m/1.94m Evli/cons. R&D costs amounted to EUR 2.4m or 13% of net sales (Q1’20: 2,6m, 13%). SBU net sales decreased -37,7% to EUR 5.8m vs. EUR 6.0m Evli estimate. Decrease was mainly due to COVID-19 situation continuing to affect the security market. IBU net sales increased +11% to EUR 2.4m vs. EUR 2.7m Evli estimate. MBU net sales increased +20% to EUR 10.1m which was broadly in line with our estimate of EUR 10.5m. Growth was driven by continued good demand for medical CT applications, especially in China.

 Strong medical to continue, security also starting to recover

The increased investments in healthcare infrastructure and demand for CT applications have kept momentum for MBU strong. As a result, DT expects MBU sales to grow over 20% in Q2 and H2. DT is also seeing early positive signals in the security market after a difficult year. DT believes that worst challenges in SBU are behind and security will head toward growth starting in Q2 and continue to grow in H2. IBU sales is expected to be at the same level as in the comparison period in Q2 but to grow in H2. In total, DT expects total net sales to grow double-digit in Q2 and in H2 of 2021 driven mainly by the strong medical demand.

 Target price of €30 (prev. €28.5), HOLD rating

Our estimates are broadly unchanged after the report. As the security market is slowly starting to recover and demand in medical market remains strong, we remain positive towards the investment case given both the market drivers as well as DT’s strategy and execution capabilities. We expect both net sales and EBIT growth to recover in 2021E, but accurately predicting the slope of the recovery is challenging. We expect 2021E to be a year of recovery, and DT to resume above 15% margins from 2022E onwards. Based on increased confidence in security market recovery and strong outlook in medical, we raise our target price to €30 (prev. €28.5) but maintain HOLD recommendation.

• Q1 result: Q1 net sales amounted to EUR 18.3m (-8% y/y) vs. EUR 19.2m/19.2m Evli/consensus estimates. Q1 EBIT was EUR 1.4m (7,5% margin) vs. EUR 2.2m/1.94m Evli/cons. R&D costs amounted to EUR 2.4m or 13% of net sales (Q1’20: 2,6m, 13%).
• Security Business Unit (SBU) net sales decreased 37,7% to EUR 5.8m vs. EUR 6.0m Evli estimate. Decrease was mainly due to COVID-19 situation affecting demand. Despite international passenger travel still stagnating, DT sees that domestic air transport has recovered in many countries close to the pre-pandemic levels and cargo transport is increasing. DT expects SBU sales will start to increase in late Q2 and continue to grow in H2, but demand is characterized by uncertainty.
• Industrial Business Unit (IBU) net sales increased 11% to EUR 2.4m vs. EUR 2.7m Evli estimate. IBU sales is expected to be flat in Q2 and to grow in H2, but demand may fluctuate.
• Medical Business Unit (MBU) net sales increased 20% to EUR 10.1m which was broadly in line with our estimate of EUR 10.5m. Growth was driven by good demand for medical CT applications, especially in China. DT expect demand in medical CT applications to increase and MBU sales to grow even more in Q2 and H2 than in Q1.
• No change in medium-term targets; at least 10% net sales growth, EBIT margin at or above 15%.

Light in the end of the SBU tunnel

In its Q4 report, DT was cautiously optimistic that SBU growth is turning a corner. SBU sales will still decrease in Q1 y/y, but start growing in Q2, although demand is still uncertain, as for example China’s critical infrastructure and rail transport recovery projects have progressed slowly. MBU sales are expected to grow double digit in H1/2021. DT’s total net sales are expected to decrease in Q1 and grow in H1 of 2021. We expect Q1 net sales to decline 4% to 19.2 MEUR (19.1 MEUR cons) and Q1 EBIT of 2.2 MEUR (1.9 MEUR cons).

 SBU split into two separate segments: SBU and IBU (Industrial Solutions Business Unit)

DT announced in conjunction with its Q4 result that it is splitting SBU into two separate business units to better boost both BU’s development. The new SBU focuses solely on security application sales, while the newly launched Industrial Solutions Business Unit (IBU) focuses on the industrial segment. In 2020, IBU accounted for EUR 11.6m (27%) of SBU sales and 14% of total sales. As a result of the new segment, MBU currently represents the biggest segment with approximately 50% of sales thanks to strong momentum in MBU and pandemic headwinds in SBU. Industrial market is categorized as higher margin, but smaller volumes, a more fragmented customer base, and a variety of end applications. DT has said it aims to complement its industrial portfolio with software and algorithms. DT expects IBU sales to grow in H1. We have incorporated the new segment data with 2020 comparison figures into our models.

 We maintain our previous target price of €28.5

Based on the new segment data, we have slightly calibrated our estimates upwards, but overall picture looks the same. We expect both net sales and EBIT growth to recover in 2021e with the help of continued good performance in MBU and a recovery in SBU. We maintain our previous target price of €28.5 ahead of the earnings report, our recommendation is now HOLD (prev. BUY).

A decent Q4 and 2020 given challenging market situation

DT’s Q4 figures were broadly in line with expectations. Q4 net sales amounted to EUR 19.9m (-20,4% y/y) vs. EUR 22.2m/22.2m Evli/consensus estimates. Q4 EBIT was EUR 2.3m (11,8% margin) vs. EUR 2.7m/2.75m Evli/cons. R&D costs amounted to EUR 2.2m or 11,2% of net sales (Q4’19: 2.6m, 10,6%). SBU net sales were EUR 9.0m vs. EUR 11.3m Evli estimate. SBU sales declined -45,5% y/y, mainly due the COVID-19 pandemic affecting security investments and challenging comparison figures. MBU net sales were EUR 10.9m which was in line with our estimate of EUR 10.9m. Dividend proposal is 0.28 (0.28/0.25 Evli/cons), which is at upper end of distribution policy of 30-60%.

 Cautiously optimistic outlook

After a challenging year, especially for SBU, DT is cautiously optimistic that the worst for SBU is soon behind. Demand in the security market is expected to head for growth in Q2 of 2021 at the earliest. SBU sales will decrease in Q1 y/y, but will start to grow in Q2, although demand is still subject to uncertainty. DT sees growth in industrial sales and double-digit growth in MBU sales in H1 of 2021. Total net sales are expected to decrease in Q1 and grow in H1 of 2021. DT sees predictability of the company's target markets still lower than usual due to the extraordinary uncertainty caused by the pandemic. As of Q1/21, DT will report three business segments; MBU, SBU and new Industrial Solutions Business Unit (IBU), which previously was part of SBU. Industrial sales accounted for over EUR 10m (25%) of SBU sales in 2020. Industrial market is categorized as higher margin, but smaller volumes, more fragmented customer base, and a variety of end applications.

 BUY with target price 28.5 euros (prev. 26.5€)

We have made slight calibrations to our estimates based on the report. We continue to expect DT to return to sales and profit growth path this year. We estimate 2021e net sales growth of 12,4 % and an EBIT of EUR 12.4m (13,5% margin), as SBU will start contributing to growth from Q2/21 onwards. Although it’s difficult to estimate the slope of the recovery, improvement is still ahead, and we see DT back on the road towards +10% growth and above 15% margins. On our 2022e estimates, DT is trading at 20.6x EV/EBIT, in line with peer group. Despite valuation being in line with peer group, we’re willing to take a more proactive stance based on the increased confidence in improving security demand coupled with DT’s potential for better growth and profitability metrics than peer group. We raise our TP to 28.5 euros (prev. 26.5€ with BUY recommendation (prev. HOLD).

• Group level results: Q4 net sales amounted to EUR 19.9m (-20,4% y/y) vs. EUR 22.2m/22.2m Evli/consensus estimates. Q4 EBIT was EUR 2.3m (11,8% margin) vs. EUR 2.7m/2.75m Evli/cons. R&D costs amounted to EUR 2.2m or 11,2% of net sales (Q4’19: 2.6m, 10,6%).
• Security and Industrial Business Unit (SBU) had net sales of EUR 9.0m vs. EUR 11.3m Evli estimate. SBU sales declined -45,5% y/y, mainly due the COVID-19 pandemic affecting security investments. DT does not expect demand in the security market to improve before Q2 2021.
• Medical Business Unit (MBU) delivered net sales of EUR 10.9m which was in line with our estimate of EUR 10.9m. Net sales of MBU increased by 27,7% y/y due continued strong demand in healthcare. DT expects double-digit growth in MBU sales in Q1 and Q2 2021.
• Dividend proposal is 0.28 (0.28/0.25 Evli/cons).
• Number of active customers increased by almost 20% in 2020 to reach 330
• New segment; as of Q1/21, DT will report three business segments; MBU, SBU and new Industrial Solutions Business Unit (IBU), which previously was part of SBU. Industrial sales accounted for over EUR 10m (25%) of SBU sales in 2020.
• No change in medium-term targets; at least 10% net sales growth, EBIT margin at or above 15%.

A challenging year coming to an end

We expect Q4 net sales of 22.2 MEUR (22.2 MEUR cons) and EBIT of 2.7 MEUR (2,75 MEUR cons), meaning a decline of -11% and -16% respectively compared to last year. 2020 has been challenging with the pandemic negatively affecting DT’s Security Business Unit, which represents roughly 60% of total net sales. With our estimates, DT’s FY20 net sales are down -18% to 84 MEUR and EBIT is down -46% to 9.1 MEUR (10,8% EBIT margin). As a result, we expect DT to distribute 0.28 dividend compared to 0.38 last year. Our dividend estimate is at upper end of DT’s dividend distribution policy of 30-60%. Dividend could prove to be smaller, but we see this as immaterial as DT in our view is more a growth case than a dividend case.

 Global vaccine optimism and China brightening outlook

The key take from the upcoming Q4 result will be hearing management’s view on the security and medical imaging markets. DT stated in its Q3 report that it expects SBU sales to decrease in Q4, but to start improving in H1/21 driven by Chinese demand. China’s economy has recovered swiftly from the pandemic with Chinese’s GDP reaching pre-COVID levels at end of last year. China’s GDP accelerated 6,5% y/y in Q4 (Q3: 4,9% y/y), which is the fastest pace in last two years. The recovery in China coupled with the improved outlook for the battered aviation segment thanks to vaccine optimism, should provide DT with good grounds to improve on. MBU is expected to continue growing, albeit more slowly than in 2020.

 HOLD with new target price of €26.50 (prev. €22)

We expect DT to return to both revenue and EBIT growth in 2021 but estimating the pace of recovery remains challenging due to low visibility. We have not made any changes to our estimates before the Q4 report, but based on the increased confidence in market improvement, we raise our target price to 26.5 euros (prev. 22 euros) reflecting both growth and earnings improvement potential, at or above our peer group. Our target price values DT at 21-22E EV/EBIT of 27x and 19x respectively, in line with our peer group as we look for more signs of security market recovery.

Clear miss due to worse than expected SBU performance

DT’s Q3 result missed our and consensus expectations as SBU continued to struggle due to the ongoing pandemic, which is postponing investments in security market, especially airports. DT’s Q3 net sales were EUR 20.6m (-23.4% y/y) vs. EUR 24m/23.5m Evli/consensus estimates. SBU sales declined -43% to EUR 10.6m (EUR 13.5m our expectation) due to COVID-19 affecting the demand for security X-ray devices. MBU sales increased +20% to EUR 10.1m (EUR 10.5m our expectation) due to continued strong demand in medical CT imaging. DT’s Q3 EBIT came in at EUR 2.6m (12,6% margin) vs. our estimates of EUR 4m (EUR 3.4m cons).

 DT cautiously optimistic that worse is behind it

The COVID-19 pandemic is negatively affecting the demand for X-ray devices in all DT’s target markets, apart from medical CT imaging. Apart from domestic air transport in China, global air transport has failed to recover, which has led to exceptionally low demand in aviation. In addition, extensive restrictions on mass gatherings has negatively affected demand in security applications. DT expects SBU sales to decrease in Q4, but to start improving in H1/21 driven by Chinese demand. DT expects MBU sales to grow in Q4 and to continue to grow in Q1 of 2021, albeit more slowly than in 2020.

 Maintain HOLD with target price 22 euros

Based on the report, we have cut our sales and EBIT estimates for the coming years. On our renewed lowered estimates, DT is now trading at premiums to our peer group, but we note that there is high uncertainty in our estimates and multiples can quickly change when security market recovery starts. It’s difficult to estimate how long the challenging situation regarding aviation will continue and at what point SBU will start recovering. We do not however see DT’s competitive position, strategy or longer-term drivers compromised, and therefore DT should be well positioned to perform again once security market normalizes. Until we see some signs of security market stabilizing, we remain cautious. We maintain our target price of 22 euros and HOLD rating.

• Group level results: Q3 net sales amounted to EUR 20.6m (-23.4% y/y) vs. EUR 24m/23.5m Evli/consensus estimates. Q3 EBIT was EUR 2.6m (12.6% margin) vs. EUR 4m/3.4m Evli/cons. R&D costs amounted to EUR 2.3m or 11% of net sales (Q3’19: 2.6m, 9.7%).
• Security and Industrial Business Unit (SBU) had net sales of EUR 10.6m vs. EUR 13.5m Evli estimate. SBU sales declined -43% y/y, mainly due the COVID-19 pandemic. SBU net sales are expected to decrease in Q4 y/y, but the company expects improvement in H1 of 2021.
• Medical Business Unit (MBU) delivered net sales of EUR 10.1m which was broadly in line with our estimate of EUR 10.5m. Net sales of MBU increased by +20% y/y due continued strong demand in medical CT imaging. DT expects MBU sales to grow in Q4 and to continue to grow in Q1 of 2021, albeit more slowly than in 2020.
• No change in medium-term targets; at least 10% net sales growth, EBIT margin at or above 15%.

Expecting declining sales, but a better quarter than last

We expect Q3 net sales of 24 MEUR (23,5 MEUR cons) and EBIT of 4 MEUR (3,4 MEUR cons), meaning a decline of around -11% and -20% respectively compared to last year. Despite decline, we expect Q3 to be clearly better than Q2. The reason behind net sales decline is the lower demand in SBU due to the COVID-19 pandemic affecting the demand for security X-ray devices, especially in aviation segment. We expect SBU net sales to decline -27% to 13,5 MEUR. MBU is compensating for the decline in SBU, as demand for medical CT imaging is currently strong due to the pandemic. We expect MBU net sales to grow 26% on slightly weak comparison figures to 10,5 MEUR. We expect DT’s Q3 EBIT to be 4 MEUR (17% EBIT margin), which is -20% lower y/y (high comparison figure), but clearly better than in Q2 (2,6 MEUR).

 Looking for signs of recovery in SBU amidst low visibility

DT has stated that it expects lower demand in the security segment to continue in Q3 and SBU sales to decrease in 2020. DT however sees SBU sales starting to improve towards end of the year. DT estimated in its Q2 report that airport CT standard equipment upgrades in Europe and U.S. will be postponed at least 12 months. Regarding China, it remains unclear when similar Chinese airport standardization will start and if any security infrastructure related government recovery measures will take place. MBU sales growth is expected to continue in H2 driven by the demand in CT applications.

 Situation regarding aviation main uncertainty

The situation regarding aviation remains the biggest near-term uncertainty for DT as SBU represents roughly 2/3 of net sales and we’ve estimated aviation to contribute roughly half of SBU net sales. We have not made any changes to our estimates, thus we maintain our target price of 22 euros ahead of the report, our recommendation is HOLD (prev. BUY).

Decent quarter considering circumstances

Given the ongoing pandemic affecting especially DT’s security business, DT delivered a decent and broadly in-line Q2 operating result despite a quite significant drop in net sales. Q2 net sales amounted to EUR 21.1m (-23.2% y/y) vs. EUR 25m/25.3m Evli/consensus estimates. Q2 EBIT was EUR 2.6m (12.3% margin) vs. EUR 1.9m/3.0m Evli/cons. R&D costs amounted to EUR 2.7m or 12.7% of net sales (Q2’19: 2.9m, 10.7%). SBU had net sales of EUR 11.2m vs. EUR 15.2m Evli estimate. SBU sales declined -42.1% y/y, mainly due the COVID-19 pandemic affecting the demand for security X-ray devices. MBU delivered net sales of EUR 9.9m which was in line with our estimate of EUR 9.8m. Net sales of MBU increased by +22.5% y/y due to continued strong demand in medical CT imaging.

Short term visibility poor with aviation segment weighing on SBU

DT continues to expect lower demand in the security segment to continue in Q3 and SBU sales to decrease in 2020. DT however sees SBU sales starting to improve towards end of the year. DT estimates airport CT standard equipment upgrades in Europe and U.S. to be postponed at least 12 months. Regarding China, it remains unclear when similar Chinese airport standardization will start and if any security infrastructure related government recovery measures will take place. The situation regarding aviation remains the biggest near-term uncertainty for DT. We estimate aviation to contribute roughly half of SBU net sales. That said, -42% drop in SBU Q2 net sales is a relatively good performance given that aviation grinded almost completely to a halt in Q2. MBU sales growth is expected to continue in H2, although product mix is likely to shift from basic CT devices to more high-end devices, which should support MBU margins further.

Maintain BUY recommendation with TP of 22 euros

Based on the report, we have trimmed our 2020E sales and EBIT estimates by 7% and 4% respectively. We expect SBU sales to decline -23,5% from last year’s highs and MBU to grow +18%, resulting in 2020E net sales to decline -10% and EBIT of 12.5 MEUR. We have increased our sales growth estimates for 2021-22E to account for postponement of CT standardization related upgrades. On our revised estimates, DT is trading at 19.8x and 13.6x EV/EBIT multiples for 20-21E, some 10-20% below our peer group now that peer multiples have rerated since DT’s Q1 report. Although 2020E will be challenging, we see that DT is well positioned to weather out the storm and its competitive position with its new products remains good. Therefore, we continue to see DT as an attractive investment story given the strong longer-term drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. We maintain our target price of 22 euros and BUY recommendation. Our target price implies EV/EBIT multiple of 16.4x on our 21E estimates, which is still ~7% below peer group.

• Group level results: Q2 net sales amounted to EUR 21.1m (-23.2% y/y) vs. EUR 25m/25.3m Evli/consensus estimates. Q2 EBIT was EUR 2.6m (12.3% margin) vs. EUR 1.9m/3.0m Evli/cons. R&D costs amounted to EUR 2.7m or 12.7% of net sales (Q2’19: 2.9m, 10.7%).
• Security and Industrial Business Unit (SBU) had net sales of EUR 11.2m vs. EUR 15.2m Evli estimate. SBU sales declined -42.1% y/y, mainly due the COVID-19 pandemic. DT continues to expect that security market will not return to growth path this year (same guidance in Q1’20).
• Medical Business Unit (MBU) delivered net sales of EUR 9.9m which was in line with our estimate of EUR 9.8m. Net sales of MBU increased by +22.5% y/y due continued strong demand in medical CT imaging. DT expects MBU sales growth to continue in the second half driven by the demand in CT applications.
• No change in medium-term targets; at least 10% net sales growth, EBIT margin at or above 15%.

Expecting declining sales and operating profit due to weakened demand in SBU

We expect Q2 net sales to decrease -9% to 25 MEUR (25,3 MEUR cons.) due to lower SBU sales affected by the pandemic. For Q2, we estimate SBU declining -21,6% as demand in security applications is lower due to COVID-19. We expect MBU growing 21% with the help of increased demand in medical CT solutions. Due to lower net sales, our Q2 EBIT estimate is 1,9 MEUR (3,0 MEUR cons), which is down -60% compared to 4,8 MEUR last year.

Focus on market outlook and situation in China

Our focus in the Q2 result will be on management’s comments on the outlook for both security and medical imaging markets, as well as hearing the latest developments in China. DT has indicated that it expects healthy demand in MBU for Q2 and H2, whereas SBU sales are expected to decrease in Q2 and FY20. Looking at other industries, we note that Chinese market has been first to recover after the pandemic resided. That said, there is still a lot of uncertainty related to aviation, which is a crucial part of DT’s security business, accounting for roughly 2/3 of DT’s net sales. DT saw positive signs in demand for medical CT solutions at the end of Q1 (after a slowdown around end of 2019), stemming from CT imaging being used to detect pulmonary changes caused by the COVID-19 virus, as well as diagnosis and treatment of patients.

DT’s share price has been lagging the market, we see investment case intact

DT’s share price is YTD -23% vs. -5% HEX25, and since mid-March +26% vs. +41% HEX25. We see this relating to SBU’s exposure to aviation segment. Although 2020e will be challenging, we see DT well positioned to weather out the storm and its competitive position with its new products remaining good, thus investment case is intact. We maintain our target price of 22 euros and BUY recommendation ahead of the Q2 result.

Corona pandemic affecting SBU demand and profitability
DT’s Q1 net sales amounted to 19.9 MEUR (-13.6% y/y) vs. 22.2/22.0 MEUR Evli/consensus estimates. Q1 EBIT was 1.2 MEUR (5.9% margin) vs. 2.8/2.6 MEUR Evli/cons. R&D costs amounted to 2.6 MEUR or 13% of net sales (11% Q1’19). SBU had net sales of 11.5 MEUR vs. 14.2 MEUR Evli estimate. SBU sales declined -20% y/y, mainly due the COVID-19 pandemic. Both air and land transport decreased from 30 to 90% in different segments. MBU delivered net sales of 8.4 MEUR which was in line with our estimate of 8.0 MEUR. Net sales of MBU decreased by -2% y/y due to the expected softness in the CT market outside China at the beginning of the year, and the ramp-down in production of a product family started by one of DT’s key customers last year. The COVID-19 pandemic increased demand in CT applications towards the end of Q1, but relatively high comparison figures led to the overall development in net sales remaining negative.

Mid-term fundamentals remain good for both BU’s
DT expects lower demand in the security segment to continue in Q2 and SBU sales to decrease in 2020. DT sees that despite the short-term challenges in the aviation segment, ECAC C3 standard equipment upgrades will continue at European airports, but the deadline for CT machine installations will be probably extended by 6-12 months. The CT upgrades in the US have continued, however a slight delay is expected for future purchases. China is also preparing similar standardization and has informed earlier that they will publish details by the end of 2020. On the other hand, MBU sales is enjoying better momentum as CT imaging is used to detect pulmonary changes caused by the COVID-19 virus, as well as in the diagnosis and treatment of patients. DT sees demand in medical CT applications remaining at a good level also in H2 and MBU sales to increase in 2020.

Investment story remains attractive despite bump in the road
Based on the report, we have cut our 2020e sales and EBIT estimates by 8% and 23% respectively, while keeping our 2021-22e estimates broadly unchanged. We expect SBU sales to decline -13% from last year’s highs and MBU to grow 17%, resulting in 2020e net sales to decline -3% and EBIT of 13 MEUR. On our revised estimates, DT is trading at 19x and 13x EV/EBIT multiples for 20E-21E. Valuation picture is now more mixed as 2020e metrics will be clearly lower due to the pandemic, and growth and profitability should resume in 2021e. DT is now trading on slight EV/EBIT premium on our 2020e estimates, but on a 12% discount on our 2021e estimates. Although 2020e will be challenging, DT is well positioned to weather out the storm and its competitive position with its new products remains good. Therefore, we continue to see DT as an attractive investment story given the strong longer-term drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. Based on the estimates cut, we lower our target price to 22€ (prev. 24€) but maintain BUY recommendation. Our target price implies EV/EBIT multiple of 15.5x on our 2020e estimates, broadly in line with our peer group.

• Group level results: Q1 net sales amounted to EUR 19.9m (-13.6% y/y) vs. EUR 22.2m/22.0m Evli/consensus estimates. Q1 EBIT was EUR 1.2m (5.9% margin) vs. EUR 2.8m/2.6m Evli/cons. R&D costs amounted to EUR 2.6m or 13% of net sales (11% Q1’19).
• Security and Industrial Business Unit (SBU) had net sales of EUR 11.5m vs. EUR 14.2m Evli estimate. SBU sales declined -20% y/y, mainly due the COVID-19 pandemic. Both air and land transport decreased from 30 to 90% in different segments.
• Medical Business Unit (MBU) delivered net sales of EUR 8.4m which was in line with our estimate of EUR 8.0m. Net sales of MBU decreased by -2% y/y due to the expected softness in the CT market outside China at the beginning of the year, and the ramp-down in production of a product family started by one of DT’s key customers last year. The COVID-19 pandemic increased demand in CT applications towards the end of Q1, but high comparison figures led to the overall development in net sales remaining negative.
• Outlook update: DT expects lower demand in the security segment to continue and SBU sales to decrease in Q2. Demand in medical CT applications, however, will remain at a good level, and MBU sales will grow. DT expects the demand in medical CT applications to remain at a good level also in H2, and MBU sales to increase in 2020. DT estimates that drop in demand in the security segment will continue at least to the end of the year, and thus DT expects SBU sales to decrease in 2020.

COVID-19 – both a threat and part opportunity

DT usually doesn’t give full year guidance due to short visibility into customer demand. With the ongoing corona pandemic, it’s even harder to make predictions now. As airline travel is constrained, the pandemic can be expected to weigh negatively in H1 on SBU, which represents roughly 2/3 of DT’s sales. On the other hand, CT scanning is used to detect virus-related pulmonary changes, which in turn increases demand for CT scanners especially in China. DT’s recently launched new production facility in Wuxi provides additional capacity to support the possible increase in demand for CT equipment. As CT equipment plays an important role in diagnosing and treatment of COVID-19, DT has been permitted to keep its Beijing site operational and start manufacturing in Wuxi despite restrictions set by the local and national authorities in China.

Estimates cut, but investment story remains compelling despite near term uncertainties

Given the change in the landscape due to COVID-19, we’ve slightly lowered our Q1 estimates, especially for SBU. For Q1’20, we estimate SBU declining -2% and MBU declining -7% y/y, with total Q1 net sales declining -4% y/y to 22.2 MEUR (22.3 MEUR cons). Our Q1 EBIT estimate is 2.8 MEUR (2.9 MEUR cons), which is down 30% compared to 3.9 MEUR last year. We’ve revised down our FY’20E sales growth estimate from 10% to 6%. We still expect most of the growth to materialize in H2 as growth returns, especially in China, and volumes of new Aurora and X-Panel CMOS products ramp-up. Consequently, we’ve also lowered our FY’20E EBIT estimate by 11% due to lower sales and increased spending. Our estimates beyond 2020E are broadly unchanged, and we expect EBIT to improve in medium term due to volume growth and better GM’s due to mix and new products. We note however that coronavirus poses a clear near-term threat to our estimates, especially if the current situation is prolonged.

We maintain TP of 24 euros, with rating BUY (prev. HOLD)

On our revised estimates, DT is trading at 15x and 12x EV/EBIT multiples for 20E-21E. This is roughly 15-20% below our peer group, which we see inexpensive and unwarranted given strong market drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. We maintain our target price of 24 euros, rating is now BUY (prev. HOLD).

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).

• Group level results: 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.).

• Security and Industrial Business Unit (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.

• Medical Business Unit (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 softening in the medical CT market and the ramp-down of one key MBU customer’s product.

• Outlook update: DT estimates annual growth to remain at previous 5-6% level in all market segments in 2020, but the indirect impacts of the corona virus epidemic in Asia 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, but demand may fluctuate significantly.

• New financial targets: DT aims to increase sales by at least 10% per annum and to achieve an operating margin at or above 15% in the medium term. (Previous target: to increase sales by at least 15% p.a. and to achieve an EBIT margin at or above 15% in the medium term)

Q4 wraps up a year of decent growth

The security imaging market has been experiencing strong demand due to increasing CT investments related to new EU and US airport standards, while medical imaging market is going through a temporary slowdown. For Q4’19, we estimate SBU growing 23% and MBU declining 14% y/y, with total Q4 net sales growing 8% y/y to 27.7 MEUR (27.4 MEUR cons). Our Q4 EBIT estimate is 5.1 MEUR (4.7 MEUR cons), which is +15% compared to slightly low comparison figures of 4.4 MEUR in Q4’18. On a whole, we expect FY’19E sales growth of 12% (FY’18 5.5%) and flat EBIT growth due to increasing R&D investments and lower MBU sales and share in mix. Our DPS estimate is 0.38 (0.39 cons.), which is on par with last year’s dividend due to flat net profit growth in 2019.

Growth story to continue despite coronavirus posing a near term threat

DT usually doesn’t give full year guidance due to low visibility into customer demand. We look forward to hearing about the latest status of the medical imaging market and the effects of the coronavirus. Most of DT’s production and ~80% of personnel are located in China, with Asia representing some 2/3 of DT’s total sales. Our FY’20E sales growth estimate is +15% based on continued good growth, especially in China, and volume ramp-up of new Aurora and X-Panel CMOS products. Despite continued R&D spending, we expect EBIT improvement 2020E due to increase in sales growth and better GM’s due to mix and new products. We note however that coronavirus poses a clear near-term threat to our estimates.

Rating and TP of 24 euros maintained ahead of Q4

Despite the short visibility and possible headwinds related to coronavirus or trade politics, we see longer term investment case intact due to strong market drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. Our estimates, as well as our rating and target price of 24 euros remain unchanged ahead of the Q4 report.

Healthy Q3 with strong growth in SBU and softness in MBU as expected

DT’s Q3 figures came in close to expectations. Net sales amounted to EUR 26.9m (+9.5% y/y) vs. EUR 27.9m/27.6m Evli/consensus estimates. Q3 EBIT was EUR 5.1m (19.1% margin) vs. EUR 4.9m/5.2m Evli/cons. SBU sales grew 42.3% y/y to EUR 18.6m (EUR 17.9m Evli) due to strong demand especially in airport applications. MBU sales decreased by -27.6% y/y to EUR 8.4m (EUR 10m Evli) due to softening of the medical CT market and the ramp-down of one key MBU customer’s product. R&D costs amounted to EUR 2.6m or 9.7% of net sales.

Small estimate changes - growth drivers remain strong

Post Q3, we have made only minor upward adjustments to our estimates. Demand for new standard CT systems for airports has accelerated, starting with Europe and the US as previously noted. Chinese authorities are also commencing their standardization of airport CT equipment, which will support security outlook even further, likely starting 2021 onwards. The slowdown in medical market remains a question which management does not have a clear answer on, but most likely this is only temporary. Overall, DT’s growth drivers remain strong, especially in China where Beijing’s “Made in China 2025” initiative, has led to double digit growth rates for local Chinese OEM’s that are DT’s clients. Further support for DT’s future sales growth is provided by DT’s new product launches such as Aurora, a lower-end and price competitive product family for SBU, and X-Panel, a CMOS flat panel detector product family for static imaging (e.g. dental).

The strategy update in Q2 report affirmed that DT is committed to continue growth - no change to medium-term financial targets

In conjunction with its Q2 result, DT announced its updated strategy until 2025. The company's 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. The company 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. Given DT’s current estimated 2019E sales of above 100 MEUR, it’s fair to say that DT is a leader in the scope of the previous strategy. The new 2025 strategy expands the addressable market to an estimated EUR 3 billion in 2025, which will provide plenty of growth opportunity for DT going ahead. DT’s medium-term financial targets remain unchanged; sales growth at least 15% per annum and operating margin at or above 15% in the medium term.

Valuation remains attractive, we maintain BUY recommendation

On our estimates, DT is trading at ~20% discount on EV/EBIT and P/E multiples for ’19-20E, which we see as unjustified. Despite the short visibility, we see investment case attractive due to strong market drivers, especially in China, as well as DT’s compelling strategy and execution capabilities, which should enable DT to grow faster than the market and maintain above target level margins. Due to its proximity to the fastest growing market China and current valuation, DT could be also become an acquisition target. Our target price translates into an EV/EBIT multiple of 16.8x and 13.4x on our ‘19E and ‘20E estimates, some 6-20% under our peer group median, i.e. still leaving upside potential should investment case materialize as expected. Our rating remains BUY with revised target price of 24.0 euros (prev. 23.5).

• Group level results: Q3 net sales amounted to EUR 26.9m (+9.5% y/y) vs. EUR 27.9m/27.6m Evli/consensus estimates. Q3 EBIT was EUR 5.1m (19.1% margin) vs. EUR 4.9m/5.2m Evli/cons. R&D costs amounted to EUR 2.6m or 9.7% of net sales.
• Medical Business Unit (MBU) delivered net sales of EUR 8.4m which was below our estimate of EUR 10.0m. Net sales of MBU decreased by -27.6% y/y due to softening of the medical CT market and the ramp-down of one key MBU customer’s product.
• Security and Industrial Business Unit (SBU) had net sales of EUR 18.6m vs. EUR 17.9m Evli estimate. SBU sales grew 42.3% y/y due to strong demand especially in airport applications.
• Outlook update: DT expects growth in net sales, but growth to slow down in Q4 compared to the previous year. Previous guidance was for Q3.
• Medium-term business outlook is unchanged: to increase sales by at least 15% p.a. and to achieve an EBIT margin at or above 15% in the medium term.

Expecting strong growth in SBU, MBU softness in turn

While the security imaging market is experiencing strong demand due to increase in Chinese investments and increasing CT investments related to new EU and US airport standards, DT noted in its Q2 report that it expects a temporary slowdown in medical imaging market growth. DT has guided for Q3 sales to grow above 10%, with SBU net sales growing and MBU sales decreasing. For Q3, we estimate SBU growing 37% and MBU declining 13% y/y, with total Q3 net sales growing 13.6% y/y to 27.9 MEUR (27.6 MEUR cons). Our Q3 EBIT estimate is 4.9 MEUR (5.2 MEUR cons) compared to 5.1 MEUR in Q3’18.

Flat EBIT this year, but growth story continues

For full year 2019E, we expect net sales to grow 14% to 107 MEUR driven by SBU’s return to growth of 28% after a weaker 2018. We expect ‘19E MBU net sales growth to decline 7.6% due to the temporary slowdown in customer demand and the ramp-down of key customer’s product in H2. We expect ‘19E EBIT to be at last year’s level due to increase in R&D spending, increasing share of SBU sales affecting the mix, as well as increased pricing competition in both segments.

BUY rating and TP of 23.5 euros maintained ahead of Q3

Despite the short visibility and trade politics being unpredictable, we see investment case intact due to strong market drivers, especially in China, as well as DT’s compelling strategy and execution capabilities. Our estimates, as well as our BUY rating and target price of 23.5 euros remain unchanged ahead of the Q3 report.

Strong growth in SBU, MBU softness in turn

DT’s Q2 result slightly missed our and consensus expectations with Q2 net sales of EUR 27.5m (+12.8% y/y) vs. EUR 28.5m/28.1m Evli/consensus estimates. Q2 EBIT was EUR 4.8m (17.5% margin) vs. EUR 5.4m/5.1m Evli/cons. SBU sales were clearly better than we expected at 19.4 MEUR (+27.4%, 17.8 MEUR Evli estimate), due to strong demand in China and increasing CT investments related to new EU and US airport standards. MBU Q2 sales were 8.1 MEUR (-11.5% y/y, 10.7 MEUR Evli estimate), which was unexpected since DT in Q1 expected both BU’s to grow in Q2. The decline was attributed to a slowdown in medical CT demand and the sooner than expected ramp down of a key customer’s product. While SBU is now in turn enjoying good demand, the softness in the medical market is expected to be temporary but continuing at least until the end of the year.

Visibility remains low, but overall investment case intact

DT revised its outlook for the rest of the year citing short visibility into customer demand and unpredictable trade politics. DT previously expected total sales to grow during the second half of the year. DT is now guiding for Q3 sales to grow above 10%. Based on the result, we have made only small changes to our headline estimates 2019 and onwards. We expect 2019E net sales to grow 13.7% to EUR 107m driven by SBU’s return to growth of 28% on weak comparables. We expect ‘19E MBU net sales to decline by -7.6% due to the ramp-down of key customer’s product in H2 and slowdown in medical demand. We expect ‘19E EBIT to be at last year’s level due to increase in R&D spending, increasing share of SBU sales affecting the mix, as well as increased pricing competition in both segments.

Strategy update for 2025 period, no change to medium-term financial targets

In conjunction with the result, DT announced its updated strategy until 2025. The company's 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. The company 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. Given DT’s current estimated 2019E sales of above 100 MEUR, it’s fair to say that DT is a leader in the scope of the previous strategy. The new 2025 strategy’s market scope is broader, but DT’s medium-term financial targets remain unchanged; sales growth at least 15% per annum and operating margin at or above 15% in the medium term.

DT is well positioned to benefit from digitalization since the company’s product portfolio already consists of digital radiography products that are used in digital X-ray solutions. There are also new emerging technologies (e.g. CMOS, multi energy) that DT has invested in with the strategic goal to be the growth leader when the emerging technologies become more adapted. To our understanding, the security X-ray equipment manufacturers have been quick to adopt digitalization. However, medical and industrial equipment manufacturers are at an earlier stage of adopting the technology.

BUY recommendation maintained

On our estimates, DT is trading at discounts on EV/EBIT and P/E multiples for ’19-20E. Although visibility is short and trade politics unpredictable, we see longer term investment case intact and therefore discount unjustified. With our estimates broadly intact, we maintain our BUY recommendation with target price of 23.5 euros. Our target price values DT at EV/EBIT-multiple of 16x and 13x on our ‘19E and ‘20E estimates, which is still clearly lower than peer group despite DT’s strong metrics.

• Group level results: Q2 net sales amounted to EUR 27.5m (+12.8% y/y) vs. EUR 28.5m/28.1m Evli/consensus estimates. Q2 EBIT was EUR 4.8m (17.5% margin) vs. EUR 5.4m/5.1m Evli/cons. R&D costs amounted to EUR 2.9m or 10.7% of net sales.
• Medical Business Unit (MBU) delivered net sales of EUR 8.1m which was below our estimate of EUR 10.7m. Net sales of MBU decreased by -11.5% y/y due to softening demand and earlier than expected ramp down of one key customer’s product.
• Security and Industrial Business Unit (SBU) had net sales of EUR 19.4m vs. EUR 17.8m Evli estimate. SBU sales grew 27.4% y/y due to strong demand in China.
• Outlook updated: sales will grow in the SBU business and decrease in the MBU business in the third quarter. The company expects its net sales to increase in the third quarter in line with the company's financial targets. (Previous: the company's total net sales are expected to grow in the second half of the year.)
• Medium-term business outlook is unchanged: to increase sales by at least 15% p.a. and to achieve an EBIT margin at or above 15% in the medium term.
• Strategy update: new strategic target is to be a growth leader in digital x-ray imaging detector solutions. DT estimates the market size of digital x-ray detectors to be around EUR 3 billion in 2025. DT’s focus in the 2020 strategy done five years ago was primarily on the CT and line scan x-ray detector and solution markets, which size is estimated to be around EUR 700 million in 2020.

Expecting good growth in both SBU and MBU

DT has guided for double digit growth for both BU’s in Q2. We estimate SBU growing 17% and MBU 16% y/y, which is in line with DT’s Q2 guidance. We expect Q2 net sales of 28.5 MEUR (+16.7% y/y, 28.1 MEUR cons.) and 5.4 MEUR EBIT (+2% y/y), 5.1 MEUR cons.). Our EBIT expectation is flat due to increase in R&D spending. Overall, the outlook for SBU is positive with the security market picking up momentum after a decline in the end of last year. Demand is increasing due to the Chinese security market returning to growth and increasing CT investments related to new EU and US airport standards. The outlook for MBU is however more mixed with one key MBU customer ramping down sales of one of DT’s product in H2. Despite this, H2 net sales are expected to grow compared to last year. With SBU exhibiting a good growth profile, we’re looking for color on the possibility of MBU growth mitigating the effects of the product ramp-down in H2.

Flat EBIT this year, but growth story continues

For full year 2019E, we expect net sales to grow 11% to EUR 104m driven by SBU’s return to growth of 17.8% on weak comparables. We expect ‘19E MBU net sales growth to be flat due to the ramp-down of key customer’s product in H2. We expect ‘19E EBIT to be at last year’s level due to increase in R&D spending, increasing share of SBU sales affecting the mix, as well as increased pricing competition.

BUY rating and TP of 23.5 euros maintained ahead of Q2

Our estimates, rating and target price of 23.5 euros remain unchanged ahead of Q2 report.

Good start to the year, SBU back on track

Q1 result was in line with our expectations. Q1 net sales amounted to EUR 23.1m (+19.3x% y/y) vs. EUR 22.3m/22.6m Evli/consensus estimates. Q1 EBIT was EUR 3.9m (16.7% margin) vs. EUR 4.1m/4.0m Evli/cons. SBU sales grew 22.9% to EUR 14.5m vs. EUR 13.6m Evli estimate. MBU sales were EUR 8.6m vs. EUR 8.8m Evli estimate. R&D costs were EUR 2.5m, up 28% as indicated earlier. SBU market demand has picked up, with increasing CT investments starting in US airports. We have estimated the upcoming airport related EU and US standards to offer DT additional sales in the range EUR 20-30m in the coming years. See our report for more details.

EBIT growth taking a breather this year, longer-term investment case intact

Based on the SBU market pick up, we have moderately raised our sales estimates for ’19-21E. We expect ‘19E net sales to grow 11% to EUR 104m driven by SBU’s return to growth of 17.8% on weak comparables. We expect ‘19E MBU net sales growth to be flat due to the ramp-down of key customer’s product in H2. We expect ‘19E EBIT to be at last year’s level due to increase in R&D spending, increasing share of SBU sales affecting mix, as well as increased pricing competition. Despite flat EBIT this year, longerterm investment case is intact. We see DT’s investments this year securing its growth and profitability drivers for the coming years.

Maintain BUY recommendation with new TP of 23.5 (19)

On our estimates, DT is trading at discounts on EV/EBIT, EV/EBITDA and P/E multiples for ’19-20E. We see discount as unjustified given the attractive longer-term investment case. On the back of our revised estimates and valuation, we maintain our BUY recommendation with new target price of 23.5 euros (19).

• Group level results: Q1 net sales amounted to EUR 23.1m (+19.3x% y/y) vs. EUR 22.3m/22.6m Evli/consensus estimates. Q1 EBIT was EUR 3.9m (16.7% margin) vs. EUR 4.1m/4.0m Evli/cons. R&D costs amounted to EUR 2.5m or 10.8% of net sales.
• Medical Business Unit (MBU) delivered net sales of EUR 8.6m which was in line with our estimate of EUR 8.8m. Net sales of MBU increased by 13.8% y/y due to continued good demand from key customers and successful shipments.
• Security and Industrial Business Unit (SBU) had net sales of EUR 14.5m vs. EUR 13.6m Evli estimate. SBU sales grew 22.9% y/y due to increased demand for security solutions.
• Updated outlook: sales of both business units will grow in line with the company's financial targets in the second quarter. The company expects demand to decline in the MBU business in the second half of 2019, as a significant customer will ramp down production of a device that uses DT's solution. Despite this, the company's total net sales are expected to grow in the second half of the year. There is uncertainty regarding demand, and the intensification of competition might be reflected in product prices.
• Medium-term business outlook is unchanged: Detection Technology aims to increase sales by at least 15% per annum and to achieve an operating margin at or above 15% in the medium term.

Security market expected to pick up again

DT said in their Q418 result that they saw signs of security market picking up again and overall the beginning of the year is expected to be strong in all markets. Consequently, DT expects double digit sales growth in the first half, but second half is however more uncertain, with of one of MBU’s major customers ramping down manufacturing of a certain device. We expect both BU’s to perform well in Q1, with SBU growing 15% and MBU 17% yoy. We expect Q1 net sales to be 22.3 MEUR (19.3 MEUR Q118) and Q1 EBIT to be 4.1 MEUR (3.7 MEUR Q118). Consensus is expecting Q1 net sales of 22.6 MEUR and EBIT of 4.0 MEUR.

Varex acquiring Direct Conversion AB for 75 MEUR

DT’s peer company, Varex Imaging, recently announced its intent to acquire 90% of Direct Conversion AB for a price of 75 MEUR for the whole company. The Swedish company had net sales of 16 MEUR in 2018, which means a 4.7x EV/Sales deal multiple. This further proves the potential seen in direct conversion and photon counting, an area which DT is also investing in with its asset purchase deal of the French MultiX.

BUY rating and TP of 19 euros maintained ahead of Q1

For 2019E, we expect DT’s net sales to grow 7.5% to EUR 100.9m driven by SBU’s return to growth of 11.5% on slightly weaker comparables. We expect 2019E MBU net sales growth to be flat due to the ramp-down of key customer’s product in H2. We estimate 2019E EBIT to be EUR 18.9m (19.1m 2018) and EBIT margin to decrease to 18.8% from 19.7% level of 2018 due to higher R&D costs (30% higher vs. 2018). Our rating “BUY” and TP EUR 19.0, remain unchanged ahead of Q1.

Q4 result in line with our expectations

DT’s Q4 net sales amounted to EUR 25.7m (-6.8% y/y) vs. EUR 25.8m/27.7m Evli/consensus estimates. MBU sales were EUR 10.1m (EUR 10.8m our expectation) and SBU sales were EUR 15.5m (EUR 15.0m our expectation). DT’s Q4’18 EBIT came in at EUR 4.9m, which was in line with our estimates of EUR 5.2m (EUR 5.8m cons). Dividend proposal was 0.38, which was lower than our estimate of 0.45.

Outlook favorable with attractive pockets of growth

Our estimates for 2019E and 2020E remain intact post Q4. We expect DT’s 2019E net sales to grow 7.5% to EUR 100.9m driven by SBU’s return to growth of 11.5% on weak comparables. We expect MBU net sales growth to be flat due to the ramp-down of key customer’s product. We estimate 2019E EBIT to be EUR 18.9m (19.1m 2018) and EBIT margin to decrease to 18.8% from 19.7% level of 2018 due to higher R&D costs (30% higher vs. 2018). Despite our modest sales growth and flattish margin expectations for 2019E and the uncertainty around the extent of the ramp-down impact on MBU in H2, DT has several interesting pockets of growth (such as the MultiX acquisition, CMOS flat panel detectors for dental applications, and the Aurora product family for lower mid SBU clients), which are not reflected in our estimates but if materialized, offer clear support for the investment case.

Upgrade to BUY and target price of 19 euros (16.5)

On our estimates, DT’s 2019E-2020E EV/EBIT, EV/EBITDA and P/E are roughly 30%, 20%, 20% respectively below our peer group median. Despite a small cap discount, we see discount as unjustified given the attractive longer-term investment case. We raise our recommendation to BUY with a target price of 19 euros (16.5).

• Group level results: Q4 net sales amounted to EUR 25.7m (-6.8% % y/y) vs. EUR 25.8m/27.7m Evli/consensus estimates. Meanwhile, Q4 EBIT was EUR 4.9m (19.2% margin) vs. EUR 5.2m/5.8m Evli/cons. R&D costs amounted to 9.3% of net sales.
• Medical Business Unit (MBU) delivered net sales of EUR 10.1m which was slightly above our estimate of EUR 10.8m. Net sales of MBU increased by 24.3% y/y due to well-developed demand from key customers.
• Security and Industrial Business Unit (SBU) had net sales of EUR 15.5m vs. EUR 15.0m Evli estimate. SBU sales declined by -19.9% y/y due to Chinese transport infrastructure projects being on hold and intensified competition.

Outlook: DT expects sales to grow in both business units and geographically in all markets and believes that the company will achieve double-digit revenue growth. However, the second half of the year will be challenging for MBU sales, because one of DT’s major customers will ramp down manufacturing of a device that uses a DT solution.

Medium-term business outlook is unchanged: Detection Technology aims to increase sales by at least 15% per annum and to achieve an operating margin at or above 15% in the medium term.

SBU net sales to decline in Q4, MBU still going strong in Q4

Due to a slowdown in China’s security market and tightening competition, DT has said it expects SBU sales to decline y/y in Q4’18, in contrast to the earlier guided single-digit y/y growth for H2’18. The visibility is limited due to the suspension of many Chinese infrastructure projects. We expect SBU Q4 net sales to be 15.0 MEUR (vs. 19.4 MEUR Q417). We expect continued good growth in MBU with Q418E net sales of 10.8 MEUR (vs. 8.1 MEUR Q417).

2019 outlook in focus, especially comments on China

DT expects net sales to grow moderately at the beginning of 2019. This estimate is based on the growth outlook for the overall X-ray imaging market, which is similar for 2019 as 2018, according to DT. In the Q4 call we look forward to hearing an update on the outlook and the Chinese market, as well as any new news regarding the recently released Aurora X-ray detector family (expected to support SBU’s net sales at end of 2019).

Estimates unchanged ahead of Q4, HOLD rating and target price of 16.5 euros maintained

We expect Q4 net sales to be 25.8 MEUR (vs. 27.5 MEUR Q417) and Q4 EBIT to be 5.2 MEUR (vs. 7.0 MEUR Q417). Thus, we expect 2018E net sales to grow 6% to 94.1 MEUR from last year’s 89 MEUR and EBIT to decline 3% from last year (19.3 MEUR 2018 vs. 19.9 MEUR 2017) due to lower SBU sales and higher R&D costs. We expect a dividend of EUR 0.45, which corresponds to a 40% EPS payout and 3% dividend yield. Our rating and target price, “HOLD” and target price EUR 16.5, remain unchanged ahead of Q4.