Modulight Q2'25: Growth supported by quantum computing project

Translation: Original published in Finnish on 8/25/2025 at 8:00 am EEST.

Modulight’s revenue grew by triple-digit percentages, its operating loss was cut in half, and our estimates were exceeded. The company reported brisk trading during the summer, and revenue was also supported by the partial recognition of the quantum computing order. On the whole, the company is progressing in line with our expectations, so the estimate changes will be minor this time. However, the positive development of the gross margin will raise our earnings forecasts somewhat. We reiterate our Accumulate recommendation and raise the target price to EUR 1.6 (was EUR 1.5) based on the changes to our estimates.

The positive revenue trend of recent quarters continued

Modulight's Q2 revenue amounted to 1.96 MEUR and exceeded our forecast of 1.73 MEUR. Revenue grew by 103% from Q2’24 and by 22% from the previous quarter. Q2 was Modulight’s best quarter in terms of revenue since the company started quarterly reporting (Q1’23). According to Modulight, orders received during the summer were significantly higher than normal, a trend that continued into Q3. The number of medical lasers to be installed increased during the quarter, despite some delays in installation. An increase in installed devices supports future treatment-session-based revenue generated by the PPT model and is, we understand, closely linked to ongoing Phase III clinical trials. The tariff situation and the weakened dollar in the US could impact the company negatively, but the large share of services in the product mix will mitigate this impact.

Gross margin and earnings developed in the right direction

EBIT of -1.06 MEUR also beat our estimate of -1.72 MEUR. This outperformance is due to higher-than-expected revenue and a better gross margin. Operating costs were largely in line with our expectations. Cash flow from operating and investing activities was -1.75 MEUR. According to our estimates, the increase in trade receivables weakened cash flow, which we believe was related to the large number of orders at the end of the reporting period. We expect trade receivables to translate into improved cash flow in Q3. Net cash at the end of the period amounted to 8.78 MEUR (Q1'24: 15.02 MEUR). At the current burn rate, net cash will suffice for roughly another year and a half. It is clear that the business needs to grow fairly rapidly upward for current cash reserves to be sufficient.

Earnings estimates raised based on gross margin development

Our revenue estimates remain unchanged for now. Q2 exceeded our expectations, but according to management comments, a significant portion of the quantum computing project has already been recognized as income, which will be reflected in H2 accordingly. The gross margin trend appears to be slightly better than we expected, which moderately raises our earnings forecasts for the coming years.

Positive growth signals versus cash burn create a contradiction in our standing

The valuation of the share is uncertain due to the unpredictability of earnings and cash flow turnaround. The valuation relies heavily on future projections, which carry a high degree of forecasting risk. Success in growth during the last few quarters increases confidence in the progress of the investment story. On the other hand, the continued decline in cash reserves increases the risk profile.

EV/S multiples are 7x-5x for 2025-2026, which we find cautiously attractive due to the substantial growth potential. The DCF model suggests a moderate upside for the stock. We reiterate our Accumulate recommendation following the good development that has continued at the beginning of the year. We emphasize that a sufficient expected return on the stock requires a continuation of good performance, which is difficult to assess at this stage. The investment involves high risk, which can be realized if the budding growth slows down or is interrupted.