Scanfil - Contract Manufacturer for the Portfolio

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Here is a fresh company report on Scanfil after Q4 from Viljakainen. :slight_smile:

In our opinion, the overall picture of Scanfil’s Q4 report, published on Friday, was cautiously positive, with signs of a turnaround in the company’s earnings performance. We did not make any forecast changes to our earnings estimates after the report, but we slightly adjusted our required rate of return downwards, as in our eyes, the stock’s risk level has slightly decreased after the guidance met expectations. Thus, we revise our target price for Scanfil to 9.40 euros (previously 8.70 €) and reiterate our add recommendation. In our view, the stock’s valuation is moderate (2025e: P/E 13x, EV/EBIT 10x). Thus, we believe that the company’s interesting long-term investment story can still be accessed with a sufficient short-term return expectation at the current share price level. However, the return expectation is dependent on the realization of our forecasted earnings growth.

Quoted from the report:

Scanfil’s net debt to EBITDA ratio was 0.4x (cf. financial target below 1.5x). Thus, the company’s balance sheet and liquidity are strong. According to our calculations, the company would still have over 100 MEUR in debt capacity for inorganic growth. This would enable significant inorganic growth, considering typical industry valuations. Based on the comments, the company also seemed to have an appetite for acquisitions. Scanfil intends to increase its dividend for the 12th consecutive year, although the increase will practically be the smallest possible and one cent below our forecast. However, we view the dividend proposal neutrally.

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@Sara_Antonacci ja @Antti_Viljakainen juttelivat englanniksi Scanfilistä. :slight_smile:

Scanfil’s performance is showing signs of a turnaround. In Q4, Scanfil’s revenue decreased by 4% to 212 MEUR from a good comparison level, which was slightly above our forecast. Fundamentally the demand outlook should be improving. Head of research Antti Viljakainen summarizes.

NB! Due to a mic failure, the audio is not up to normal standards. We apologize for the poor audio quality.

Video löytyy Inderes Nordic-kanavalta, jossa on paljon videoita englanniksi ja ruotsiksi:

https://www.youtube.com/@inderesnordic

Kannattaa laittaa tilaukseen!

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Here is a new PRESS release from Scanfil about how Scanfil signed a manufacturing agreement with Laerdal Medical for the Malaysian factory. :slight_smile:

Laerdal Medical and Scanfil have signed a manufacturing framework agreement. The products will be manufactured at Scanfil’s factory in Johor Bahru, Malaysia, which was acquired in October 2024. In January 2025, Scanfil announced an investment of 4.3 million euros in the factory to meet growing customer demand.

“We are very pleased that Laerdal Medical has chosen Scanfil and its Malaysian factory as a long-term manufacturing partner for its wide range of products. The agreement demonstrates our customers’ appreciation for our strategy to expand our manufacturing capacity in Southeast Asia,” says Christian Kesten, Scanfil’s APAC Regional Director. “Laerdal Medical trusts our ability to provide high-quality manufacturing services that meet their high standards. We are committed to supporting the Laerdal Group’s mission to improve patient outcomes and save lives with innovative healthcare solutions.”

This collaboration leverages Scanfil’s Medtech & Life Science segment’s expertise, scalable manufacturing, supply chain management, and excellent operational reliability. These will ensure the delivery of life-saving products to healthcare professionals worldwide. Deliveries will begin in mid-2025.

“We are excited about the new agreement. Scanfil has a strong reputation in supply chain management, quality, and global deliveries,” states Sjur Gausel, Strategic Sourcing Director at Laerdal Medical. “Scanfil also has long and in-depth expertise in the demanding manufacturing of medical devices, and we see this agreement as the beginning of a long-term partnership.”

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As is well known, Scanfil has openly expressed its interest in new acquisitions/arrangements. Scanfil certainly has high-volume, very cost-effective factories in China and Poland, as well as a diverse factory network in general, but perhaps one more highly cost-effective unit would fit the overall picture. inderesTV discussed generally the growth logic of contract manufacturers through acquisitions and more specifically Scanfil’s situation. Finally, a short segment on growth opportunities in the defense industry.

Topics:
00:00 Start
00:20 Incap: “It takes two to tango”
03:30 Organic versus inorganic growth
07:21 “Rather big than small”
11:03 Necessity of acquisition for Incap
14:30 Scanfil’s factory network
16:08 Scanfil, SRX and M&A track
19:16 Necessity of acquisition for Scanfil
22:30 Growth opportunities for contract manufacturers in the defense industry

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https://www.youtube.com/watch?v=IISBxZabQ3o defense industry mentioned.

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Scanfil’s peer Kitron raised its guidance, and here are Antti’s comments related to it. :slight_smile:

…Additionally, we consider it possible that the very strong growth outlook of the Western defense industry and the need to increase production will also open up growth opportunities for Scanfil and Incap.

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Nordea states in its new analysis that it expects Scanfil’s Q1 organic growth to remain negative and the operating profit margin to be weak due to investments. According to them, the threat of a trade war naturally adds uncertainty, which could delay orders and push down the upper end of the guidance.

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Viljakainen has completed an extensive report as his night work, and like other extensive reports, it is available for everyone to read. :slight_smile:

We reiterate our Add recommendation for Scanfil and lower our target price to EUR 9.00 (previously EUR 9.40), reflecting forecast reductions due to the geopolitical situation and an increase in the required rate of return. We expect Scanfil’s playbook to continue to work, even though uncertainty related to investment-driven demand is now very high. The stock’s risk-adjusted expected return, comprising all components, is still slightly higher than the required rate of return in our papers.

Quoted from the report:

In our assessment, Scanfil is well within its comfort zone regarding its financial position. Therefore, the company can calmly continue to implement its strategy and organic and inorganic investments. Furthermore, in our opinion, the risks related to working capital are somewhat neutral or still slightly positive, and working capital management is largely in the company’s own hands. Thus, Scanfil’s financial position has the prerequisites to strengthen further. If the guidance is met, Scanfil will achieve net debt-free status within approximately one year, and in this scenario, the company’s financial position would be very strong.

image

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Antti’s preliminary comments as the company publishes its Q1 results on Thursday. :slight_smile:

Scanfil has ramped up production of new projects won last year, likely at several factories, which has probably weighed on the company’s growth and profitability in the early part of the year. Consequently, we expect Scanfil’s Q1 figures to have weakened slightly from a satisfactory comparison period, although the figures are also organically supported by the SRX acquisition completed at the beginning of Q4’24. According to our assessment, Scanfil will reiterate its guidance in the Q1 report, although pressure on at least the upper ends of the fairly wide ranges may be downwards due to indirect negative repercussions of global trade policy. A recent comprehensive report on Scanfil can be read here.

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Antti was quick with his comments. :slight_smile:

Scanfil’s Q1 numbers were slightly weaker than our forecasts in a quarter characterized by new project ramp-ups. The company updated its earnings guidance metric, but in practice, the guidance remained unchanged, which was also in line with our expectations. According to our preliminary assessment, the report does not cause significant pressure for changes to our Scanfil forecasts or consensus forecasts for the near future.

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Here is Viljakainen’s Q1 report. :slight_smile:

The overall picture of Scanfil’s Q1 report, published yesterday, was in our opinion quite neutral, and we did not make any forecast changes after the report. In our view, the stock’s valuation is reasonable (2025e: P/E 13x, EV/EBIT 10x), but the expected return no longer exceeds the permanent required rate of return over a 12-month horizon due to elevated macro risks. Thus, we reiterate our target price for Scanfil at 9.00 euros and lower our recommendation to reduce (previously add) as the upside potential of the stock has narrowed.

Quoted from the report:

Balance sheet is strong and there would be capacity for inorganic growth

Scanfil’s net debt to EBITDA ratio was 0.35x (cf. financial target below 1.5x). Thus, the company’s balance sheet and liquidity are strong. According to our calculations, the company would still have over EUR 100 million in additional capacity for inorganic growth. This would enable significant inorganic growth, considering the industry’s typical valuations. Based on the comments, the company still seemed to have an appetite for acquisitions, although we would not be surprised if the prevailing high uncertainty limited the strongest deal-making enthusiasm in the very near future, both on the buyers’ and sellers’ side.

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Scanfil invests in a second electronics manufacturing line in Atlanta, USA. The demand for electronics manufacturing in the United States has grown over the past two years and is expected to continue its growth. Read more:Scanfil investoi elektroniikan valmistukseen Yhdysvalloissa - Scanfil

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Here are Antti’s comments on this new production line. :slight_smile:

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@Pia_Maljanen and @Antti_Viljakainen talked about Scanfil in English.

This video can be found on the Inderes Nordic channel, which is worth subscribing to:

https://www.youtube.com/@inderesnordic

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Outsourcing news. Swedish company Freemelt, which develops and sells 3D printers, is outsourcing its entire production to Scanfil.

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This seems to be a classic example of the logic by which a customer outsources production to a contract manufacturer :clap:

Freemelt, listed in Stockholm, appears to be a relatively early-stage company, so, initially, the customer relationship is unlikely to bring significant growth on Scanfil’s scale. However, the industry is very interesting, and Freemelt seems to have a strong desire for growth, at least in light of its financial targets (1 billion SEK revenue by 2030). Should the target be realized, the customer relationship could be of a reasonable size for Scanfil as well.

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Näyttökuva 2025-05-21 kello 14.47.39

I don’t remember if there has been much talk about that before, but it caught my eye in the latest earnings presentation. There’s certainly enough money, and the latest acquisition doesn’t move the needle much yet.

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On Friday, this stock exchange release was published :slight_smile:

Scanfil’s General Counsel Teemu Ohtamaa Joins the Company’s Management Team

Scanfil’s General Counsel Teemu Ohtamaa (LL.M.) Joins the Company’s Management Team on June 1, 2025.

“Teemu has worked for the company for over 20 years. He has become a valuable asset to the company and its success. He understands the company, its history, the industry, and is an experienced business law expert. Congratulations Teemu and welcome to the Management Team,” says CEO Christophe Sut.

Teemu has worked for the Scanfil Group since 2000 as a lawyer, HR Manager, General Counsel, and Board Secretary. From 2011 to 2017, he also served as General Counsel and Board Secretary for Sievi Capital Oyj.

Teemu’s CV and photo can be found in the attachments.

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Scanfil organized an investor meeting at its Sievi factory on May 22nd, which was arranged for local retail investors. I had the pleasure of attending this event, and here’s my two cents :slight_smile: On site, it was possible to chat with the management at length. Additionally, we got to know the Sievi factory through a factory tour. The company’s management gave a presentation on its history, present, and future.

Special thanks to @Pasi_Hiedanpaa for the company and for the good answers to all the questions that were asked. In addition to Pasi, the event was attended by, among others, the company’s Chairman of the Board, CEO Sut, and CFO. Regarding Pasi, it’s clear that the company has been studied thoroughly. Therefore, Pasi can correct all my mistakes in this message; these numbers are just thrown out from memory :smiley:

1. The Chairman of the Board’s (and largest shareholder’s) historical recollection. Harri was the right man for this, as the company was founded by his father, and Harri has been involved in its operations more or less since he was little:

  • Scanfil will turn 50 next year! To celebrate this, a book about the past years is coming out. This is truly a “must-have” item for all shareholders!
  • The 1990s was a period of rapid growth for Scanfil. Did you know that Scanfil’s revenue grew from 5 million in 1990 to 100 million in 2000 as a working figure?
  • Scanfil has not had A SINGLE loss-making year during its entire (almost) 50-year stock market history! (ok, there was a story that apparently during the 90s recession, there was one year where the numbers were a bit ‘on the fence’ :smiley: )

Essential and critical events for historical development:

  • 1980s: Jorma’s reaction and investment in the electronics industry; this was seen as a clear growth area with plenty to do, allowing them to “catch the megatrends”. They dared to invest in the right things.
  • 1990s: aggressive growth, which led to becoming a major supplier for Nokia (they had to be large enough for this to succeed), and naturally, through that, they also got a share of Nokia’s growth.
  • 2002: Acquisition of Wecan Electronics. Competitors around them were merging, so Scanfil had to react to avoid becoming a “hot dog stand”. A very important strategic move that ensured they could respond to the competition. There were also some business synergies in the background.
  • 2015: Acquisition of PartnerTech; the acquired company was probably slightly larger than Scanfil, so it was a big purchase.
  1. Miscellaneous figures and facts about the company:
  • The company produces 10,000 different products for various customers!
  • I asked about the company’s position in the value chain and its changes over the decades – typically, the position of electronics contract manufacturers is perceived as difficult. Harri didn’t quite buy into the idea that they have been or ever were under significant pressure. The company’s strategy has always essentially included the desire to produce large entities and critical stages for customers’ products. That is, products where the switching costs for the customer are higher.
  • Referring to the above, both Harri and CEO Sut repeatedly stated that the company’s “stickiness” has always been very good. And if you look at the company’s major customers
  • The year 2024 definitely proceeded with a “destocking” theme for Scanfil’s customers and the entire industry. This was clearly reflected in the company’s revenue. Nothing unusual, this is how economic cycles have gone, especially recently.
  • The company sees very good growth opportunities, both organically and inorganically. And this story was somehow easy to buy. It felt like the CEO was enthusiastically able to describe several different geographical areas and genuinely demonstrate that opportunities abound. And it’s no wonder there are opportunities even organically: if I look at the company’s major customers, they are, damn it, such defensive and high-quality organic growers themselves, so it’s no wonder Scanfil grows too: KONE, ABB, Tomra, Danfoss, Valmet, Vaisala, ThermoFisher, Planmeca, Sandvik.
  • The company also emphasized its defensiveness by stating that even though the largest customer accounts for 13% of revenue and the top 10 for 55%, these customers buy numerous different products from Scanfil across various product areas, which also have completely different market cycles. This highlighted and gave the impression that Scanfil’s revenue is much more diversified and “safer” than one might superficially imagine.

One of Scanfil’s biggest “problems” for external investors has been its highly concentrated and loyal ownership base. The owners are perhaps a bit too satisfied, which is reflected in the trading volumes. I calculated that the founders of Scanfil and their close circles still own 68% of the entire share capital :smiley: And there are no eager sellers, because all long-term owners who know the company recognize that such good long-term investment targets are hard to find in Finland. The company’s DNA has always included a strong balance sheet, nurturing profitability, and a desire for growth. The company does not grow at any cost, and it would rather leave a new, poorly profitable customer relationship on the table than engage solely for the sake of growth. The company also emphasizes this in its fresh, new strategy.

Harri made a good quip related to this topic, which I don’t remember verbatim (how did that go, Pasi?) but the idea was: “no one forces you to buy from us if our price doesn’t please you”

P.S. Pasi, try to advocate for small investors so that next spring’s annual general meeting can be held physically due to the 50th-anniversary celebrations :smiley:

Other listed companies should also organize such events for investors!

IMG_3542

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Thanks @JNivala for the comprehensive report and it’s great that you were able to attend. Nothing to correct. If you have any questions about Scanfil, you can contact me via private message on the Inderes discussion forum, or directly at pasi.hiedanpaa@scanfil.com or by phone at 0503782228.

Best regards, Pasi

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