Malaysia Manufacturing Expansion And M&A Will Open New Opportunities

Key Takeaways

• Strategic expansion in Malaysia and focus on operational efficiency are expected to drive revenue growth and improve net margins.
  
• Stabilization in key regions and targeted acquisitions are set to strengthen revenue outlook and increase market share.
  
• Negative growth and declining profitability suggest challenges in driving revenue and pressure on earnings, amid geopolitical risks and volatile regional performance.

Catalysts

Operates as a contract manufacturer and system supplier for the electronics industry worldwide.

• The acquisition of Laerdal Medical and the strategic move to expand manufacturing in Malaysia is a forward-looking catalyst. This expansion is expected to drive revenue growth as it enhances the company's production capacity and caters to increased demand.
  
• Structural changes with the creation of four operational regions and improved regional management focus are likely to improve operational efficiency, potentially boosting net margins as business development in these distinct areas becomes more targeted.
  
• New machinery and increased capacity in the Malaysian operations are expected to enhance production capabilities and meet growing customer demands, which can positively impact earnings through greater output and potential cost efficiencies.
  
• The stabilization and growth in the APAC and Americas regions, as well as momentum in Energy & Cleantech and Medtech customer groups, suggest a strengthening revenue outlook as market conditions stabilize and new contracts contribute to future sales.
  
• Continued focus on M&A to complement regional operations and customer portfolios could provide additional growth opportunities, augmenting revenue and potentially enhancing market share as new acquisitions integrate effectively into Scanfil's operations.

Scanfil Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Scanfil Oyj's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.8% today to 5.4% in 3 years time.
• Analysts expect earnings to reach €50.9 million (and earnings per share of €0.78) by about May 2028, up from €37.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, down from 15.3x today. This future PE is lower than the current PE for the GB Electronic industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

Scanfil Oyj Future Earnings Per Share Growth

Risks

• A negative growth of 3.2% and an organic revenue decline of 7% year-on-year may indicate potential challenges in driving revenue growth, impacting future revenue projections.
  
• Declining earnings per share from €0.15 to €0.13, along with a bit lower return on equity at 11%, suggests pressure on profitability, which could affect overall earnings and investor returns.
  
• A decline in revenue from SRX and ongoing work for future capacity with full operational capability only expected post-summer could imply delayed revenue contributions from acquisitions, impacting short-term earnings.
  
• Strong reliance on localization of manufacturing and recent facility investments could lead to increased exposure to geopolitical trade tensions or market shifts, potentially jeopardizing revenue and affecting cost structures.
  
• The consistently lower profit level in the Northern Europe region, with defense business exhibiting volatility, may pose risks to profit margins and revenue stability in that segment.

Valuation

• The analysts have a consensus price target of €9.167 for Scanfil Oyj based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €943.4 million, earnings will come to €50.9 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of €8.72, the analyst price target of €9.17 is 4.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.