Semcon - Starting the year in style

Profitability excelled in Q1, EBIT margin of 11% We increase our margin assumption Fair value range of SEK 100-148 (93-138) Q1: Revenue mix improving, EBIT +31% vs ABGSCe Semcon reported Q1 revenues of SEK 418m (-15% y-o-y, -12% organic), which was slightly behind our forecast of SEK 422m. The lower y-o-y sales was expected following the restructuring in Q2 last year and the divestment of the Indian business in Q4’20. In terms of end market breakdown, the share from the automotive sector continues to decrease and stood at 31% (40%) of total revenues in Q1, which means it is now only the second largest contributor to Semcon revenues as industrial revenues was 32% (32%). In addition, Life Science increased its share of total revenues further and now accounts for 13% (9%) of total revenues.

The improved revenue diversification is one of the reasons for the improved EBIT margin of 11% (10. 2%). Other reasons were improved productivity and the fact that some costs related to travel and conferences have not returned to pre-COVID levels.

EBIT was SEK 45. 9m and we were too pessimistic with a forecast of SEK 35. 1m.

EBIT upgrades of 6. 4%-4. 3% for ‘21e-‘23e We increase our EBIT margin assumption following the Q1 report as we think the wording on the conf.

call, regarding cost savings from COVID-19, indicated that they are not just temporary. For example, productivity has been maintained despite a remote working setup and although some travel will return, there might also be a possibility to decrease costs related to offices as less space will be needed if more work is done remotely. We raise our EBIT margin assumption by 0.

6-0. 4pp for ‘21e-‘23e, resulting in 6-4% positive revisions on EBIT estimates. M&A activity yet to materialize, healthy cash position Our fair value range is increased to SEK 100-148 (93-138) as a result of the positive estimate revisions.

It reflects Semcon trading 10-40% below our peer group on ‘21e P/E. If we also take into account Semcon’s ne.