Sales up 23% y-o-y, but lower EBIT

Obtained order after the period, relating to Germany

We cut ’19e-’21e sales by 10-12%

Q3: sales +23% y-o-y, EBIT margin -5.2pp vs Q3’18
Motion Display (MODI) followed Q2’s strong order intake by delivering Q3 sales of SEK 12.6m (+23% y-o-y), which was 6% above our forecast. Although this was a record Q3 in terms of sales, the EBIT margin contracted to 3.4% (8.6% in Q3’18), due to the combination of a lower gross margin and increased opex. As such, EBIT fell SEK 0.8m (or 65%) short of our expectation. Order intake amounted to SEK 6.9m (-14% y-o-y), which resulted in an order book of SEK 4.3m by the end of Q3. Here, we note that MODI received an order on the German market (with a value of SEK 1.3m) after the quarter.

Starting to gain traction in Europe
We regard the German order as positive, given that the company has recently made several initiatives in order to strengthen its position in Europe. Further traction in this market should also mitigate the (according to the company) recently-noted prolonged sales cycles in the US (a market that accounts for the majority of MODI’s sales). We choose not to extrapolate the protracted sales cycles into our estimates, but will follow the development in detail in the coming quarters.

Estimate changes
Despite sales coming in slightly above our forecast, we have reduced ’19e-’21e sales by 10-12%, reflecting the relatively soft order intake. We have also reduced our gross margin assumptions, which have recently been hurt by the implemented US tariffs. These revisions, in combination with our slightly raised opex assumptions, have resulted in ’19e-’21e EBIT cuts of SEK 3m-5m. On our revised estimates, the share is trading at 1.3-1.7x ’19e-’21e EV/sales. Cash by end of Q3 amounted to SEK 0.1m. We think that the company will raise debt in order to strengthen its cash position.

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