Equity research HANZA: Preview Q2, 2024
12 Jul 2024
Much like in Q1, Carlsquare Equity Research expects soft underlying sales development also in Q2 2024. However, we predict the adjusted EBITA margin will improve sequentially from the depressed level in the previous quarter. Focus themes include the progress of expansion projects, including the Orbit One integration, and efficiency measures.
Contract manufacturers report soft demand but solid margins in Q2
Following a slower-than-expected Q1, 2024, we predict that underlying sales will contract again in Q2 (minus seven per cent). Other EMS companies have recently reported weak revenue (e.g., Kitron -19 per cent in Q2, 2024) or trimmed sales guidance (i.e., Scanfil for the full year). A silver lining is that, e.g., Kitron is still optimistic about a recovery toward the end of the year. Despite weak sales, Kitron’s operating margin surprised on the upside. Similarly, AQ Group reported an organic sales contraction of six per cent. However, the operating margin rose from a favourable product mix and increased efficiency.
In Q1, HANZA also had to cope with the integration of Orbit One and an imbalance in demand between different units. This entailed sub-par efficiency and meagre profitability. At the beginning of June, HANZA announced redundancies in Sweden and Finland of around 70 people as it plans to close two smaller units (in Electronics and Mechanics, respectively). As a result HANZA expects a one-off cost of SEK 20m in Q2. In parallel, HANZA stated that the integration with Orbit One has been completed ahead of time. Hopefully, this bodes well for gradually improved efficiency in the second half of the year.
Below are our expectations for Q2 2024 (the report will be presented on 23 July at 7.30 am). We have not included any restructuring costs for the period. As mentioned above, HANZA has hinted at a possible SEK 20m one-off negative impact.
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