Neonode Q3 comment: Break-even in Q4’16 reiterated
2016-11-09 21:51, Edited at: 2016-11-09 22:02
The share of Neonode initially opened in the red today, following weak Q3 numbers (and likely a quick Donald Trump chock). Neonode reported sales of USD 1.6 million and an EBIT loss of USD –2.1 million, significantly below our estimates of USD 3.3 and -0.9 million. Following a long, informative conference call where Management reiterated its break-even guidance for Q4’16 the share recovered and is right now up 4 percent.
All business areas contributed to the annual sales decline of -47 percent. 50 percent of the explanation behind the Q3 outcome in relation to our estimates is no NRE during the quarter and the AirBar pre-orders not being delivered as we previously expected. There was also however, more unexpectedly, a sequential, negative growth of -16 percent in sales from automotive and printers together, compared to Q2’16. Looking a little bit closer on these figures and adjusting them for the NRE in Q2’16 automotive and printer sales was actually up 17 percent Q/Q.
As we mentioned in our preview though, numbers was not the focus in this report, something the stock market seems to agree with us on, given the uptick in the share price. The report confirmed our positive view on the automotive business. In addition to the recent USD 11 million deal Neonode also mentioned an agreement with Autoliv to bring the steering wheel module to market. This was positve but not surprising given the large Autoliv NRE in the previous. Important also is that AirBar is proceeding according to plan with the first shipments to Ingram Micro in US and Europe already made. Within short AirBar will be available at BestBuy, Amazon, CDW, Walmart, Newegg etcetera.
We will return with a research update as soon as possible but we do not expect to make any substantial changes in our estimates or valuation. Thus, we reiterate our base case valuation of USD 3.7 per share and our bull and bear fair value range of USD 1.2 – 6.2. The share is still trading on levels around our pessimistic scenario of USD 1.2, meaning substantial upside (over 200 %). The depressed share price is not surprising given the history and we also did not expect any changes in this sense, prior to the break-even levels in Q4’16.
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