Translation: Original comment published in Finnish on 12/15/2023 at 7:10 am EET

The investment plan is very large on LapWall's scale, and we estimate that it would enable the company to grow above the revenue target of 70 MEUR set for 2026. Limited information makes it difficult to assess the investment in more detail. With LapWall's competitive advantages, aggressively seeking market share has attractive features, especially if customers can be earmarked in advance for the new capacity and the financing of the large project is arranged efficiently.

LapWall plans a new assembly and part manufacturing plant in Pyhäntä

LapWall announced last night that the company is planning to build a new assembly and part manufacturing plant in Pyhäntä. The element assembly capacity of the highly automated factory would be approximately 600,000 m² per year. Running at full capacity, the plant would directly employ about 50-60 people and would be ready for production during H2’25. The new plant would have a part manufacturing line and two element assembly lines, one of which would make roof element system products. A possible investment decision could be made in early 2024. The gross investment in the expansion would be approximately 15-17 MEUR.

The investment would enable profitable growth in line with LapWall’s strategy and a significant increase in market share. LapWall’s Pyhäntä unit has been running in full two shifts since August 2023, despite the slowdown in demand for residential construction. This investment prepares for a pick-up in the market outlook in the coming years.

The new assembly and part manufacturing plant would become part of the current factory area of the Pyhäntä unit, where large material flows can be managed cost-effectively. The investment would significantly reduce the costs of part manufacturing and assembly and improve material efficiency by utilizing the latest technology in the industry.

The investment plan is very big, but acceleration is also attractive

In our opinion, the investment plan was not a huge surprise, as LapWall aims to gain significant market share in the Finnish prefabricated market through its product range that enables productivity improvements and lower-emission construction and cost-efficiency based on economies of scale. LapWall’s financial target is a revenue level of 70 MEUR by 2026, which we believe would have been reached with significantly smaller investments. Therefore, we believe that the investment plan is aimed beyond the current strategy period, but profitable growth in Finland is likely to remain LapWall's strategic target until the next decade. The plan is also very large relative to LapWall’s balance sheet, as the company’s balance sheet total at the end of H1 was 26 MEUR and equity was 15 MEUR.

LapWall did not specify the prerequisites for a positive investment decision in its release, but we suspect that the company will seek to acquire new, earmarked and long-term customers for such significant additional capacity in advance. We believe that this is important from the point of view of risk management in the project. The financing model of the project also needs sorting out considering the scale, although we find it possible that public investment support may be available for the investment next to income financing, debt and/or equity. Based on the limited information, it is still difficult to assess the project in more detail at this stage, but we are confident in the strength of the company’s competitive advantages, which in our opinion speaks for seeking market shares in the competitor field that has been severely hit by the construction cycle this year. A modern plant (incl. high level of automation) would probably also strengthen LapWall’s advantage over its competitors, as the ability of on average markedly smaller competitors to make similar investments is weak. We will include the investment plan in our LapWall forecasts as a possible in connection with the investment decision.