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Scanfil - High margins to be maintained

Scanfil’s Q3 results landed quite near estimates. In our view growth is bound to moderate next year, but EBIT should stay high at around EUR 60m as current volumes hold up.

Q3 near estimates, already signs of moderating growth

Scanfil’s Q3 revenue remained roughly flat at EUR 213m, compared to the EUR 219m/216m Evli/cons estimates. Growth excluding spot market purchases was still a very decent 9% y/y, which can be compared to the roughly 5-7% long-term CAGR prospects seen in the relevant niches of the EMS industry, although already clearly lower than the 30% rate clocked in Q2. In our view it has long been evident growth will have to settle down a bit no matter how favorably positioned Scanfil’s customer portfolio may be. We note so far Scanfil’s customer outlook changes have been rather small. EBIT amounted to EUR 15.2m vs the EUR 15.7m/15.3m Evli/cons estimates while the margin was still a very good 7.2%.

We expect only marginal growth in the short-term

We estimate Q4 figures a bit above the midpoints of their respective guidance ranges, while there’s still quite a lot of uncertainty regarding where the underlying volume growth rate will settle next year. We estimate only rather marginal growth for FY ’24-25 relative to the 5-7% long-term potential/target rates following recent years’ double-digit CAGR. Scanfil will review its annual strategy early next year; we wouldn’t expect very significant or visible changes at this point as Scanfil already has a high-performing two-tiered plant network and customer portfolio focused on attractive OEMs, many of them driven by megatrends related to e.g. green energy transition. In our view Scanfil might look to find more small but high-growth accounts within Energy & Cleantech and Medtech & Life Science, however such efforts will take time to make a visible impact on figures even when successful.

EBIT to remain above EUR 60m with a CAGR of 2%

We continue to estimate 7% EBIT margins going forward; EBIT should stay above EUR 60m assuming a relatively flat top line for the next couple of years. Scanfil is valued around 7.0-7.5x EV/EBIT on our FY ’23-24 estimates, which still represents an attractive discount relative to peers even if their multiples have declined a bit lately. We retain our EUR 9.0 TP and BUY rating.

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