Komax Shares Surge Following UBS Upgrade to “Buy”

Shares of Komax experienced a notable increase on Thursday following an upgrade from UBS, which raised its rating from “neutral” to “buy” and adjusted the price target to CHF 170, down slightly from CHF 175.

As of 5:44 am (0944 GMT), Komax’s shares were trading 6.3% higher at CHF 125. This upgrade occurs in the context of a challenging market but signifies UBS’s confidence in Komax’s potential for recovery and growth over the long term.

Komax caters to major Tier 1 and Tier 2 automotive suppliers and is diversifying into the aerospace, industrial, and telecommunications sectors. Despite its strong positioning, the company has recently encountered significant challenges.

Over the past 18 months, there has been a dramatic decline in orders, influenced by uncertainties regarding automotive production rates, delays in platform launches, and issues of overcapacity in both Europe and China. This downturn follows a surge in orders triggered by the Ukraine conflict, creating a turbulent environment for Komax.

UBS’s upgrade is based on several important observations. The firm contends that order trends reached their low point in the first half of 2024, marking the fourth consecutive semester in which the book-to-bill ratio fell below 1x. Recent signs of increased activity are viewed optimistically as indicators of future growth. Additionally, the downturn has led Komax to implement significant cost-cutting measures and expedite the integration of Schleuniger, a process that was initially expected to take 5-10 years.

These strategic actions are intended to streamline operations, cut costs, and strengthen Komax’s competitive position. UBS has noted that, while the FY24 earnings per share estimate has been reduced by 92%, estimates for FY25/26 have also seen cuts of 23% and 10% respectively, there are still promising long-term growth factors at play.

These include cost savings, strategic acquisitions such as Hosver, which focuses on high-voltage wires in China, and a forecasted rebound in demand. UBS anticipates mid-term revenue potential for Komax between CHF 750 million and CHF 800 million, which is below the company’s goal of CHF 1 to CHF 1.2 billion by 2028. Achieving this target necessitates a recovery and sales growth of 13% to 14% from the 2024 baseline.

On the EBIT front, UBS projects an approximate mid-term EBIT of CHF 100 million. Despite a lower base for 2024, the company’s focus on cost reduction and operational efficiency is expected to decrease the break-even point, supporting a rebound in EBIT margins, which could potentially reach 13% by 2028. The valuation of Komax shares has seen a significant drop, plummeting 60% from their 2023 peak and 40% year-to-date.