Translation: Original published in Finnish on 12/16/2024 at 7:11 am EET.

Note is in our view a fairly good peer to Scanfil, but Incap has been developing at a different pace than most of its peers for a longer period of time. Note expects the contract manufacturing market to start recovering gradually next year. This reflects the consensus view, although last week the Norwegian contract manufacturer Kitron presented a somewhat more cautious scenario of a recovery in demand, especially for industrial electronics. The organic growth and earnings growth expectations for Scanfil in our forecasts and consensus forecasts for next year are somewhat in line with Note's guidance.  

Note expects market recovery next year

Note, the Swedish peer of Finland’s Scanfil and Incap, organized a Capital Markets Day (CMD) on Friday. In this context, the company raised its guidance for Q4 and provided guidance for next year. In Q4, Note expects its revenue to be at least 1 BNSEK (previously 975-1025 MSEK) and its adjusted operating margin to be at least 10% (previously at least 9.5%). For next year, Note's guidance is for revenue of 3.9-4.3 BNSEK and an EBIT margin of 9.5-10.5%. This implies double-digit operating profit growth measured from the midpoint of the range, using the lower end of the current year's guidance as a benchmark (2024e: revenue of at least 3.87 BNSEK and EBIT-% of at least 9.2%). Note expects demand to gradually recover during 2025, especially in its key industrial electronics segment, partly due to the fading of negative inventory effects. In addition, we believe that the company has also relied to some extent on new customer wins in its guidance.

Note maintained its financial goals for the longer term at the CMD, including revenue of 7.5 BNSEK and an EBIT margin of 10% by 2028. The company's growth target in particular is, in our view, very aggressive and requires not only a favorable development of the contract manufacturing market (i.e. growth clearly outpacing GDP growth driven by a rise in outsourcing rates), but also strong success in winning new customers and customer-specific market shares. The company's growth track record is certainly strong, with a compound annual growth rate (CAGR) of 17% between 2019 and 2024.   

Our forecasts for Scanfil are consistent with Note's outlook

We forecast Scanfil revenue growth of 9% and adjusted EBIT growth of 11% next year. Approximately 40% of the growth and earnings increase will come from the SRX acquisition, while our expectations for improvement in other areas are based on the gradual recovery of demand in line with European economic growth and the traction likely to be generated by the company's sales successes this year. Our estimates for Scanfil, and also the slightly higher consensus estimates for Scanfil, are broadly in line with Note's guidance and the underlying market outlook. However, it is noteworthy that Note is significantly more positive than Norway's Kitron in its guidance for next year and the underlying market outlook, although Note's weighting in the defense sector, which has good prospects, is also lower than Kitron's. We believe that the differences partly reflect the considerable uncertainties still surrounding the market situation.

In our current forecasts, we expect Incap's organic revenue growth to be around 10% and organic EBIT growth to be around 14%. However, Incap has been on a different path than its peers for some time, which we believe is due to the single large customer in Incap's customer portfolio and Incap's exposure to this customer's business performance. In addition, Incap appears to have outperformed the overall market in terms of growth in other customer accounts this year. Thus, we feel that there is less to be gleaned from the comments of Note or other peers concerning Incap's outlook.