I-Tech Q2’20: Solid report, making progress
Redeye Research Note 2020/08/26
- The report will not lead to any major revisions of our estimates at this point, and our base case valuation remains at SEK 80 per share
- Sales overall scaling up as we expected, with CMP continue to represent a majority of sales
- The fourth customer remains undisclosed, but continue to purchase significant volume. Hopefully, the customer will be announced in the coming quarter.
- The market climate in the industry is still tough, as many ships are idle, also we see a decline in demand for newbuilds. The newbuild effects on marine coatings will be lagging with about 1-2 years. An increased amount of idle ships will lead to increased biofouling, and in turn, increased the demand for high-performance antifouling
I-Tech reported net sales of SEK 16.2m, in line with our estimate of 15.5m, corresponding to a 28% growth y/y and a 19% growth sequentially. Sales are mainly derived from its largest customer, Chugoku Marine Paints (CMP), while we interpret smaller volumes of sales to Jotun and Hempel at this point. I-Tech further indicates that the fourth (undisclosed) customer is purchasing significant verification volumes.
The company reported a gross margin of 47%, slightly above our expectations of 45%, some pressure remains from increased delivery costs due to the Corona Crisis. Set aside form COVID, we believe the margin would have been a few percentages higher, but we are satisfied. Opex came at our expectations as I-Tech reached a positive EBITDA of SEK 2m during the second quarter.
The report will not lead to any material changes in our estimates, and our base case valuation at SEK 80 remains. We will get back with an update.