Cost focus buys time for smartcard transition
The smartphone market is in decline and we calculate a fall in Fingerprint’s addressable market of 11% for 2019E. We trim sales by 10% for 2019E but raise them by 4%, 3% and 16% for 2020E-22E, respectively, thanks to a potential improvement in the company’s smartphone market share and higher smartcard volumes.
Successful cost cutting and greater confidence in cost management lead to us lifting our EBIT margin estimates for 2020-22E by 2.2, 3.0 and 2.6 pp, respectively. We also foresee lower financial risks and increase our valuation range to SEK 8.3-16.0 (6.0-11.9). Slight revenue beat, but gross and operating margins falter Revenue of SEK 424m beat our estimates by 2%. Gross margin declined 5.9 pp to 20.8%, missing our estimates by 3.3 pp owing to a delay in the new FPC 1511 and falling margins of older sensors.
EBIT was SEK -26m in Q4 2018, SEK -25m less than our estimates. This was mainly due to higher admin costs than we had expected. However, overall opex was down 43%
y/y in Q4, which makes us more confident in cost management. Cost management has proven efficient, margins to expand We forecast a gross margin expansion of 5.7 pp to 26.5% for Q1 2019E and 27.5% for 2019E as volumes of the new low-cost FPC1511 sensor picks up.
The CEO expects the production costs of FPC1511 to be at least 10% lower. We are more confident in the company’s ability to manage costs and cut our opex estimates by 3% a year for 2019E-20E.
