Kitron guided stable or decreasing earnings for next year

Translation: Original comment published in Finnish on 12/14/2023 at 9:02 am EET

Yesterday, Norwegian contract manufacturer Kitron issued its guidance for 2024 in connection with its CMD. The market was probably disappointed by the guidance ranges indicating stable or slightly declining growth and earnings, but we find the ranges sensible relative to our current Scanfil forecasts. Consequently, our Scanfil forecasts are not subject to direct change pressure.

Kitron raised its profitability target in the CMD and provided guidance for 2024

Kitron, the Norwegian peer of Scanfil and Incap in particular, hosted a CMD yesterday and provided guidance for 2024. Kitron raised its profitability target by one percentage point to over 9% EBIT in the CMD, which was hardly a major surprise to the market as the company has already reached this level of profitability this year. In the industry context, we find the profitability target quite high (cf. Scanfil’s financial target of adjusted EBIT of 7%).

For 2024, Kitron guided that revenue will be 700-800 MEUR and EBIT 60-74 MEUR, which in practice means a stable or slightly negative development if the 2023 guidance is used as comparison (2023e: revenue 750-800 MEUR, EBIT 65-75 MEUR). This year is the best in Kitron's history. We have no information about next year's market expectations for Kitron, but we suspect that they were missed because Kitron's share fell by some 10% yesterday. According to Kitron, demand in Europe and Asia is subdued especially in H1 as inventory correction continues, while business related to electrification, power grids and defense grow.

Our Scanfil forecasts are reasonable compared to Kitron's comments

Our 2024 Scanfi forecasts are broadly in line with Kitron’s guidance, as we forecast Scanfil’s revenue to fall by 5% and adjusted EBIT by 6%. We have been cautious about Scanfil’s growth and earnings growth expectations for next year, especially due to the weak macro data in the industry during the year and the recent decline in orders in the technology industry. Therefore, Kitron’s guidance does not cause immediate change pressure to Scanfil’s near-term forecasts. Scanfil is expected to publish its numerical guidance for next year in connection with its financial statements in February. We expect Incap’s organic growth and operating result to develop steadily next year, but Incap’s growth and earnings growth is more subordinate to individual customer demand. Thus, we feel that less conclusions can be drawn from the comments of Kitron or other peers concerning Incap.

We find it possible that Scanfil will raise its profitability target

Scanfil will update its strategy under the management of the new CEO. In this context, we expect the company to also consider its profitability targets, which are already starting to lack somewhat behind the targets (and in part also realized figures) of Nordic peers. Therefore, we would not be surprised if Scanfil increased its margin target in connection with its strategy update in early 2024 and aimed not only at growth but also at increasing profitability in its strategy. Incap does not have a profitability target, but in recent years, the company’s margins have been clearly at the highest levels of Nordic companies and also in double-digit territory.