Modulight as an investment

[Opa]

Modulight announced today that it is aiming for First North.

2020 revenue was EUR 10.1 million and H1 2021 grew +24% vs H1 2020. Profit performance is strong, with the EBIT margin in H1 2021 at a remarkable 57%.

They are raising EUR 60 million, partly for the company’s cash reserves and partly for existing owners. Anchor investors are even prepared to subscribe to the entire offering if the company’s valuation is at most EUR 205 million before the share issue.

Certain funds managed by Didner & Gerge Fonder AB, Evli Fund Management Company Ltd, Mandatum Asset Management Ltd, SEB Investment Management AB, Swedbank Robur, and Teknik Innovation Norden Fonder AB (Tin Fonder), as well as Varma Mutual Pension Insurance Company (together the “Anchor Investors”), have under certain conditions committed to participate in the IPO and subscribe for shares for a total of approximately EUR 61.5 million at the final subscription price, provided that the valuation of the company’s entire share capital before the share issue is at most EUR 205 million at the final subscription price.

In the planned IPO, the Company intends to raise gross proceeds of approximately EUR 60 million through a share issue, in addition to which certain existing shareholders of the Company intend to sell their shares.

Modulight is a Finnish technology company that designs and provides lasers and solutions for various medical and biomedical applications as well as other selected high-value-added applications. The company provides related equipment, software, and services to medical technology companies and target markets worldwide. Modulight’s products are used by many international pharmaceutical companies, Fortune 500 companies, and leading cancer research institutes and universities. Modulight’s revenue was EUR 10.1 million in 2020, growing by 40 percent compared to the previous year. The company’s EBITDA in 2020 was EUR 5.8 million and the EBITDA margin was 58 percent. Modulight was founded in 2000, employs approximately 70 people, and is headquartered in Tampere.

https://www.modulight.com/

https://www.modulight.com/tiedote/?slug=lehdistotiedote-9-9-2021-modulight-oy-suunnittelee-listautumista-nasdaq-first-north-growth-market-finland-markkinapaikalle

[SijoitusSeppo]

Profitability is incredibly strong
Growth looks good
Small size, so there’s definitely growth potential left and it’s also a potential acquisition target
Interesting industry with strong competitive advantages and moats
Valuation in the current market isn’t even excessive (205M€, if it made 4-5M€ profit this year, P/E 40-50, downright cheap compared to e.g. Revenio )

I’m interested. There’s certainly a lot more potential here than in these other recent listings.

[Rahastosijoittaja]

Looks very interesting.

Here are a few articles from the end of last year that everyone can read.

https://y-studio.fi/yrityksen-kasvu/johtaminen/modulight-kasvoi-laseralan-huipputekijaksi-seppo-orsila-avaa-miten-hengissapysymiskamppailu-vaihtui-menestykseen/

Positiivista pöhinää, kehittämisen generointia - Tampereen kauppakamarilehti

[III21]

This case has generated very little interest so far, considering that the company is already making strong profits and has significant growth potential. I will definitely subscribe, so it doesn’t bother me if the general public doesn’t discover this company In my opinion, this has the ingredients for a great story, almost like Revenio.

[Koka_Kola]

At first glance, a truly interesting listing! Modulight’s CTO talks about the company and its products in this video, which is about half a year old:

MODULIGHT - 20-year Semiconductor Experience Fueling Solutions PHOTONICS+2021

A few highlights of everything Modulight is involved in:

When getting excited about these technologies that will define the next decade, it’s good to keep this Buffett quote in mind:

What you really should have done in 1905 or so, when you saw what was going to happen with the auto is you should have gone short horses. There were 20 million horses in 1900 and there’s about 4 million now. So it’s easy to figure out the losers, the loser is the horse. But the winner is the auto overall. 2000 companies (carmakers) just about failed.

As a light-hearted note, an important piece of information from the video:

we also bought a pizza oven in our investment program.

[Contrafun]

An interesting company that has been featured in the newspapers before. This field is unfamiliar to me, so please note that, but here are some sources/information related to the company.

Modulight’s story began at Tampere University of Technology’s Optoelectronics Research Centre (ORC). Modulight’s website features a Tekniikan Maailma article from 2018, where the director of ORC states that the laser industry in Finland has largely concentrated in Tampere. https://www.modulight.com/pdf/tekniikanmaailma.pdf

Based on the articles added to the thread, Modulight has had to do a lot of strategic work to find the right direction. They tried space and defense technologies but ultimately focused on narrower sectors such as cancer treatment, optogenetics, gene sequencing equipment, and ophthalmology. The target market chosen is the US market and large companies within it.

A fairly comprehensive overview of this field for laypeople appears to be the Finnish Parliament’s Committee for the Future publication 5/2018, “Photonics Bringing Light to Finnish Well-being,” published in 2018. It also includes a story about Modulight. Link to the publication (pdf): https://www.eduskunta.fi/FI/naineduskuntatoimii/julkaisut/Documents/tuvj_5+2018.pdf

According to the publication, Modulight launched its first cancer treatment laser on the market in 2015. The 2018 report describes the current customer situation as follows:

“Currently, the company has eight pharmaceutical companies as clients, mainly from the United States and Europe, to whom Modulight exclusively supplies laser treatment devices and related services.” (Photonics Bringing Light to Finnish Well-being, p. 56)

In 2018, Bausch & Lomb announced an agreement with Modulight to develop a laser device for the treatment of eye diseases using photodynamic therapy (PDT). This would likely be for the photodynamic treatment of macular degeneration with the Visudyne preparation.
https://www.bausch.com/our-company/recent-news/artmid/11336/articleid/459/1242018-tuesday

There are also customer relationships in the automotive industry:

“Finnish players such as Vaisala Oyj, Modulight Oy, Oplatek Group Oy and VTT Oy have been involved for years in European research projects together with leading automotive industry players (including Daimler, Renault, Fiat, Autoliv, Ibeo, SICK and Bosch).” (Photonics Bringing Light, p. 80)

Modulight naturally needs cleanrooms to achieve the required hygiene level. According to an article in the Tampere Chamber of Commerce magazine, the cleanrooms have found additional use with Custom&industry applications, which serve various industrial sectors such as automotive and satellites, as well as service agreements for e.g. product support, testing, and software updates. This also brings automotive industry clients.

Modulight’s profitability trend does not appear to be temporary, as Orsila states in the Tampere Chamber of Commerce magazine added to the thread (Positiivista pöhinää, kehittämisen generointia - Tampereen kauppakamarilehti): “We have now improved turnover and profitability for seven consecutive years.”

At the end of the Y-studio interview, Orsila states about price increases: “Modulight has quintupled its prices over the years. Customers have given feedback but paid, because they have seen the other value.”

ps. Modulight is also involved in sports sponsorship , as in June 2021, Modulight signed a cooperation agreement with Tappara and also became Ilves’ main cooperation partner.

[Sentinvenyttaja]

“Modulight signed a cooperation agreement with Tappara, and the company also became Ilves’ main cooperation partner.”

So, a hockey stick effect is to be expected?

Sorry, I couldn’t resist, now I’ll probably get flagged..

Regarding the offering: a high-tech company, growth opportunities, and high profitability. The most important points were well presented above by the user SijoitusSeppo. I am definitely interested in the offering, but the anchor investors will probably take almost everything, leaving retail investors with perhaps only €100 worth of shares. Depending on the valuation, I’ll add more from the listing, but scarcity will likely drive the price up.

Regarding profitability: it can, of course (without knowing Modulight’s numbers), be improved by reducing losses for seven years?

Edit: Mentioning SijoitusSeppo

[Leminesko]

“Modulight is also involved in sports sponsorship ; in June 2021, Modulight signed a partnership agreement with Tappara and also became Ilves’ main partner.”

Sorry guys, but that doesn’t add any value to the company. If I buy shares, I will demand at the general meeting that the management stops sports sponsorship. Sponsorship is the owners’ business.

But seriously, it’s interesting to get acquainted with an industry again where you only know fragments here and there. And the good thing about this exercise is that now a good sum is being raised at once to finance growth. So far, it’s been strong performance.

And yes, a pizza oven has also been acquired! It certainly makes things easier when you can get a guaranteed snack made by your own chef between making money. Things are good here.

But seriously, the product range is wide and the customer base seems supportive. This certainly has the ingredients for a good story.

[Contrafun]

Yeah, that hockey reference was meant as a lighthearted closing. I could have left that part out of the message, though.

If one tries to somehow structure the market, such a picture can be found in Yole Développement’s report. Modulight is also there, in small print, if you look closely.

Link to the Yole report from which the above image is taken:
https://s3.i-micronews.com/uploads/2021/05/YINTR21173-Edge-Emitting-Lasers-Technology-and-Market-Trends-2021_flyer.pdf

Yole’s presentation: Edge Emitting Lasers - Technology and Market Trends 2021
https://s3.i-micronews.com/uploads/2021/05/YINTR21173-Edge-Emitting-Lasers-Technology-and-Market-Trends-2021_sample.pdf

[BobbyMcGee]

@Contrafun take another look at the picture you posted. Modulight can also be found there, a little bigger.

[Taloudellinen_Ajatte]

I took a closer look at the company, and it certainly seems like a very interesting IPO candidate in every respect.

Did anyone delve deeper into the earnings logic? Is it device sales, or are there recurring billing services involved, and if so, what percentage?

P.S. The breakdown of the management team into Master of Science in Technology and Doctor of Science in Technology degrees brought a smile to my face. It’s somehow so typically Finnish. The university next to the headquarters probably explains a large part of this. https://www.modulight.com/johtoryhma/

[TomiP]

Kauppalehti article (behind a paywall):

Kauppalehti

"Modulight offers lasers and optics for the most demanding applications. It operates on two fronts: pharmaceutical and biomedical, and as a supplier of industrial applications. The laser device developed by the company is used to treat, among other things, brain cancer, ocular melanoma, head and neck cancer, and lung cancer. Photodynamic cancer therapy uses a drug that is activated in tissues with a laser.

Modulight’s laser treatment device is a versatile device that can be used in surgery, cancer treatment, and antibacterial applications, among others."

"In expanding its product range, it plans to gain market share by, among other things, expanding its ophthalmology platform to cover surgical treatments for glaucoma and refractive errors, for example.

The company also plans to expand the use of its medical device platform to, for example, endoscopes and devices used in dentistry."

According to the article, the company’s CEO Seppo Orsila commented at a press conference related to the listing plan that Modulight has not identified any companies with a similar offering. He found competitors among those companies that are also Modulight’s customers.

Customers mentioned in the article:
“Modulight’s customers are international corporations. The customer list includes names such as Bausch Health, Olympus, and Aura. It supplies industrial applications to HP and Vaisala, among others.”

[TomiP]

@Taloudellinen_Ajatte

Did anyone delve deeper into the earnings logic; is it device sales, or are there continuous billing services included, and if so, at what percentage?

Some information on the earning model seems to be available here:

Liiketoiminta

“Modulight’s earning model is four-phased in both main business areas. The company’s customer strategy at each stage is to agilely cover the entire process from concept to active product portfolio, which allows customers to shorten their products’ time-to-market and significantly increase their value. Modulight typically charges the customer a project-based fixed fee, a service fee, or a license fee based on the customer’s turnover.”

Screenshot from the company’s website

[Sereno]

Orsila is the CEO and Chairman of the Board, so the “Suovaniemi effect” frightens me a bit. But the track record is strong, and it seems lessons have been learned from difficult times. An interesting case. Hopefully, current shareholders won’t sell too much of their holdings during the offering.

[Taloudellinen_Ajatte]

That’s expressed so cryptically there that I, at least, as someone unfamiliar with the industry, can’t make much sense of it. So, are they selling devices, services, or both? Is the license fee continuously billed or a one-time payment? What proportion of revenue comes from which revenue category?

Additionally, I’m interested in the TAM (Total Addressable Market) and the market growth rate versus Modulight’s growth rate. Are they growing at the market rate or faster?

[JukkaM]

@Taloudellinen_Ajatte

That is expressed so cryptically there that, at least as someone who doesn’t understand the industry, I don’t get much out of it. So are they selling devices or services or both?

I also find it hard to grasp. This is how I’ve understood it based on the website’s information:

Modulight supplies laser-based products and customized solutions.
The products are for sale, and the key products are:

• Medical laser ML7710
• Medical illumination device ML8500
• Laser for eye diseases ML6710i

Additionally, the company offers customized laser solutions, and I understood that the aforementioned 4-phase model, from concept to production, falls under this. This is invoiced as a “project-specific fixed fee, service fee, or a license fee based on the customer’s turnover.” There was no information on whether it’s a one-time license fee.

In addition to these, there is a list of various separately purchasable paid services on their website.

But if this is clear to someone, they can correct me.

[Wally]

This sounds interesting. However, Modulight was not found in Nordnet’s search? So, it’s not yet listed on the stock exchange?

Could you please explain in simple terms how to acquire Modulight shares? Are they available for purchase already? Or are we waiting for the listing, and if so, how can one find out when the share offering is active?

Or if there’s anything else, I’d be grateful for advice from those wiser than me!

[Geologiopiskelija]

Modulight is visible among Nordnet’s listers, but the offering has not been dated yet

[EskiMaisa]

Listautuminen

You can get up-to-date information from there.

[TomiP]

Kauppalehti article (Sept 9). The article is behind a paywall, so only the most relevant parts/excerpts not mentioned in other articles have been picked:

Pörssiin listautuva Modulight tekee kovaa tulosta, mutta alkuvuodet olivat...

Modulight manufactures medical laser devices and supplies chips for the lasers in lidar (Light Detection and Ranging) radars for autonomous cars. Medical lasers previously accounted for 70 percent of revenue, but in recent years, the share of other products has risen to 50 percent.

According to CEO Seppo Orsila, the company is one of only five companies in the world that manufactures pulse lasers themselves. The other European company is the German Osram.

“The Chinese have tried to make similar lasers for years but have not succeeded,” he says.

Ten of Modulight’s customers are already on the Fortune 500 list. Two of them came during the COVID-19 pandemic. The company does not talk about its automotive customers, but its website reveals that a company that calls itself a leading star in the industry is a customer.

Modulight’s newest star product is a laser device for treating brain cancer. Glioblastoma is one of the most difficult brain cancers, with only three percent surviving it.

“With the laser we developed, 20-40 percent can recover from it,” Orsila says.

The company’s laser devices can also be used in cancer treatments for the eye, neck, and throat area. In addition to the device, the company offers its customers service packages for its use.

The company’s most important market is the United States, which has accounted for 60–70 percent of sales.

“Asia is rapidly growing, and Europe’s share has varied between 10–30 percent,” he says.