Smart Eye - King of automotive’s Interior Sensing AI?

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I am opening a thread for a Swedish company specializing in eye-tracking technology, Smart Eye.

A few facts about the company:

  • The company was founded in 1999, so they have two decades of experience in the field.
  • IPO in 2016 (First North Nasdaq OMX Stockholm)
  • Market capitalization today (28.8.2020) 1800 MSEK or 170 million EUR
  • The field is a niche, and serious competitors are currently few (competition will increase in the future).
  • The company’s management team has approximately 18% ownership in the company.

The main product is camera-based sensors installed in cars, which monitor the driver’s alertness (just becoming common, like seatbelts and airbags once were).

In driver monitoring technology, the company has won numerous tenders (so-called Design Wins), from which revenue will start coming in the coming years as new car models are rolled out to the market.

The company’s revenue this year (2020) is at 70 MSEK. The profit is predicted (RedEye.se) to turn positive in 2022, by which time revenue would have grown to around 400 million. The company is forecast to experience very strong growth for the next decade. The business is scalable.

Below is an excellent and comprehensive company presentation (September 2020) in PDF format, which I strongly recommend reading for a deeper understanding! :slight_smile:
Smart Eye - Company Presentation
02_Smart Eye.pdf (3.0 MB)

A Guide to Smart Eyes Technology
An-in-depth-look-at-our-technology-1.pdf (587.9 KB)

Link to 2020 H1 results report

Links to stock analysis

11.9.2017 long report

11.5.2020 update

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Oh, they just recently raised it from SEK 120 to SEK 160. What could have happened since then? The share price hasn’t risen significantly since the last time I checked (SEK 105). Now it’s SEK 117.

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The company stated in connection with Q2 that the coronavirus has not significantly slowed down car manufacturers in adopting the technology or reduced interest in it. Redeye expects positive news about new contracts by the end of the year, which will boost the share price. These are at least some of the factors. The revenue development was quite close to the forecast, which probably increases confidence in the progress, and the profit-making phase is now a quarter closer.

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The video in this link has good information about when fully self-driving cars might come to market. It will take several decades.

However, partially self-driving cars (under driver supervision, e.g., on highways in good conditions) may appear within a decade. Therefore, there will be a need to monitor the driver’s eye movements for a very long time, and there is no need to be too concerned about the transition to driverless robotic cars in this investment.

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Redeye’s forecasts from May. The 2023 PE forecast is approximately 8 at a share price of SEK 120. If growth materializes, the stock will be valued at much higher multiples.

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Smart Eye is one of RedEye’s top 3 model portfolio holdings. The other two are Embracer and Genovis. RedEye usually has a good hit rate in its selections. They aim to find companies that haven’t yet been discovered by major radar. They were, for example, behind Remedy even before the Remedy hype began.

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Good point. You’ve certainly piqued my interest. Would you mind, @lazyway, suggesting some websites, analyses, etc., where I could dig up information about the company? Somewhere other than the company’s own website :slight_smile:

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I’ve been researching the company through Redeye because I have a monthly subscription there. I don’t dare to post the entire paid report here. Could you go and see what free content they have available about the company? And if you find information elsewhere, please link it here :slight_smile:

EDIT: It turns out the reports are available for free, see the links in the opening post.

Indeed, I’ve only been familiarizing myself with the company for a couple of days, but I immediately became interested and put a large sum into the stock.

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The European Parliament’s legislation for safe, clean and connected mobility includes specific regulations to mandate that new car models are equipped with advanced safety features. From mid-2022 all new cars, vans, buses and lorries are to be sold with factory-equipped features detecting drowsiness and distraction monitoring.

Since driver monitoring is becoming mandatory (EU 2022, etc.), there is no question of whether the technology will become more widespread or not. The industry is currently a niche, and competition is quite low, although it will increase in the long term. Redeye estimates that Smart Eye will be the market leader in automotive eye sensors in the near future. The company’s moat is 20 years of development work and already won competitions for future car models, which will generate an order book far into the future. The barrier to entry is high due to the complexity of the technology.

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What is Smart Eye’s earnings model like? I can’t seem to find how profit is built up on the bottom line. :thinking:

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Read the original investment research from there, which is available for free.

https://www.redeye.se/research/559578/smart-eye-alert-leader-awakening-market

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I also happened to see this in Redeye’s Morning Brief email the other day and did some research, but I had already forgotten about the company. Then I noticed this thread and read through those Redeye reports and bought a 100-share position out of interest. (and so I wouldn’t forget ;)) :slight_smile:

@Bansku That English report from May is also free. https://www.redeye.se/research/782025/smart-eye-more-than-meets-the-eye

As well as that comment from the day before yesterday: https://www.redeye.se/research/792195/smart-eye-q220-the-crowning

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It’s great that even fresh material is open to everyone for free, good thing you noticed and linked it! :slight_smile:

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A few more points, without taking a stand on the company’s valuation itself:

I like companies where the management is committed and passionate (holdings include Remedy, Herantis, Qt, Harvia, Capman). From reports, I get the impression that other competitors are starting quite a bit behind in catching up to what Smart Eye has done (as already noted here, the work started in 1999).

From the latest comment:

“Now that all smoke has cleared, we find it unlikely that the market leader of DMS would be a company where insiders still only hold about 0.5% of total shares outstanding, as in the case of main competitor Seeing Machines.”

From the May report:

“Smart Eye is governed by an owner operator as the co-founder is the CEO, which is positive in many ways. Compensation is moderate and just. We especially like the tendency to include all employees in the stock option programs, which indicates a healthy HR policy that could explain the relatively low employee turnover. The solid growth trend during the years prior to the listing implies that so far investments have been savvy and execution essentially flawless. Overall the Management score is hampered by Smart Eye’s short period on the stock market where e.g. there is not much history of Smart Eye’s communication to the shareholders as a listed company. As mentioned Smart Eye is governed by owner operators where the founding family (Martin
& Mats Krantz) together owns ~15% of the company. Overall, insiders in the Board as well as Management own a lot of shares and keep on adding to their positions. The founding family really has put their money where their mouths are. Thus, the ownership structure is in short very appealing. Our only concern is if there are enough financial muscles to back up the Company should there be need for future supplementary investments.”

Quickly read, I like the business model.

“Major revenue secured for many years to come
Smart Eye’s compelling business model means that it has secured large revenues for many
years to come. The rolling 12-month sales are currently only SEK 56m, but there is a lot
more to discover than what meets the eye for anyone ready to do the leg work. Following
Smart Eye’s mid-level Grand Slam, its 81 design wins from 12 OEMs are valued at SEK 2bn,
with SEK 3.3bn for potential, additional models on these platforms.”

The expected total value of the 81 design wins is SEK 2bn (see the table below). However,
there is an even larger value of these platforms of SEK 3.3bn. The last announcement of four
OEMs for design wins no. 58-81 was only valued to SEK 500m, which seems a bit low. Our
belief is that Smart Eye is not dumping prices, but instead in its communication uses a
conservative under-promise approach.

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After a quick look, this seems too good to be true (hardware will be mandatory in new cars, a new market is just emerging with huge growth potential, the company’s valuation is very moderate a few years down the line if forecasts are even roughly accurate, the company has good moats).

Please also provide challenges/bad things if they come to mind.

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Great opening! The thread is immediately on the watch list!

The main competitor seems to be Seeing Machines Technology | Seeing Machines I need to study their

DMS will reportedly be mandatory in NCAP 5* tests in a few years

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RedEye quite explicitly doubts the long-term commitment of Seeing Machines’ management to the company. The insider circle there only owns 0.5 percent of the share capital.

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Maybe I skimmed those reports too quickly, but it remained unclear to me what the product is that SE sells to Tier 1 suppliers. I understood that they don’t make hardware, only software, but does the hardware then come from SE’s subcontractor, for whom SE does the design? Or do the Tier 1 suppliers make the entire module, or subcontract it, and SE only supplies the software for this module designed by the Tier 1? I believe this significantly affects the profit margin.

I know from my work what kind of moats there are in the industry and how easy it is for T1 suppliers to change their subcontractors or anything else, but Bosch, Denso, Continental, etc., are big players and have decades of honed expertise in strong-arming their subcontractors when it comes to money. Of course, this business is still new and focused on premium models, but I’m a bit skeptical about SE’s pricing power against T1 giants.

Based on the design win numbers, the product seems to be technically sound.

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{“content”:“Interesting boutique and product. I bought 100 units for speculation/satellite/do-what-you-want portfolio to start with.\n\nFor companies like these, even a hardened index man has motivation.”,“target_locale”:“en”}

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This is a really professional thread opener. This would certainly pique my interest. There could be good potential in a product like this, especially if this kind of technology becomes more common in cars.

Of course, one could ask if eye-tracking technology, which is used to detect fatigue or loss of concentration, is truly the biggest “golden egg” if cars are the main focus? Many cars already have all sorts of lane assist systems and other features.

If this technology is what’s needed, then the company has the ingredients for rocketing to success. I need to get to know the company a bit better, but it’s an interesting case nonetheless.

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