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Studsvik - Gaining ground in Asia

30 september 2020

Two major orders confirm long-term demand
Nuclear is a growth market in Asia
In a better position to reach its EBIT margin target
China order of SEK 100m and South Korea order of SEK 80m
Studsvik communicated on 28 August that it had received orders from two customers in China within the Fuel and Material Technology (F&MT) segment for a total of SEK 100m. The orders are described by the company as strategically important and were the result of working on research projects with Chinese power companies for five years. The Chinese nuclear market is one of the world’s largest and fastest growing, which indicates the long-term potential in the country. On 14 September, it was followed up by an order of SEK 80m from KEPCO for the South Korean market for transporting and testing nuclear fuel. This order is also described as a breakthrough in the country by mgmt. The South Korean nuclear market is roughly half the size of the Chinese market but around three times bigger than the Swedish market for example. It will also be a growth market in the medium-term as it has four reactors under construction, which will add to the current total of 24 operational reactors.

Estimate revisions stem from the F&MT segment
Both orders are within the F&MT segment and we think roughly 40% of the total order value of SEK 180m will contribute to growth in the coming years, whereas 60% of the total order will replace current business. In terms of the timeline for the total order, we forecast SEK 5m in ‘20e, SEK 60m in ‘21e, SEK 85m in ‘22e and SEK 30m in ‘23e. Both orders were also described as raising the basic capacity utilization, which we think will have a positive effect on margins. In total, we raise our EBIT estimates by 15-20% for ‘21e-‘22e and think that Studsvik is now in a better place to reach its financial target of an EBIT margin of 8%.

Stock trades at a P/E of 12.2x for 2021e
The stock has reacted positively to the recent news from the company and is up 65% in the last three months. On our revised estimates it trades at a P/E of 12.2x and an EV/EBIT of 10.5x for 2021e. It is 14% below its three-year average P/E NTM valuation of 14.4x.

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