Cenkos - Upgrade to 20p.20 Apr 2022 10:38
Win rate and market share increasing
Seeing Machines’ interim results were in line with the recent trading update, and we maintain our near-term revenue expectations. Looking further ahead our confidence in its automotive Driver Monitoring market share has increased and we are raising our expectations by 2% to 38.5%. This upgrade is tempered by an increase in our near-term engineering cost expectations to support the most recent OEM win leading to an increase in target price to 20.0p from 19.5p. We note our valuation still leaves significant upside from lower discount rates and highly conservative Aftermarket and Aviation expectations.
? Automotive DMS win rate and market share increasing: We estimate Seeing Machines has won c59% of RFQs by value since the start of 2020. We believe this reflects its leading technological position not just on an absolute basis but also a cost adjusted basis. This has led one industry analyst to predict market share of 60-65% for Seeing Machines and whilst we remain more cautious, it is clear the company’s confidence in its market share position is growing. We have therefore increased our market share expectations by vehicle numbers by c2.0% for the period of CY24-CY31.
? Engineering costs rising to support programmes: Seeing Machines customers want to add a broad array of features and to supplement the core functions, and so Seeing Machines is having to invest in significant engineering capacity to support these them. We are now forecasting a higher EBITDA loss and cash burn over the next few years, which we believe can be supported by the recent A$55m net fund raise without the need for further equity financing.
? Additional Occula® NPU license signed with US based semiconductor company for a hardware accelerated and optimised silicon platform for driver, occupant, and interior monitoring applications. This is the second license deal signed for the development of an ASIC following a previous license to OmniVision. Whilst the upfront payment is unlikely to be significant, having another low cost, high performance, and power optimised DMS chip using Seeing Machines software, that is available through another major semiconductor company, will clearly help increase the Seeing Machines win rate and market share.
? We continue to see Seeing Machines as a unique global tech opportunity combining SAAS in aftermarket, per vehicle automotive royalties in OEM, and significant upside from Aviation and other markets. With the company well financed and markets benefitting from strong regulatory backed demand and limited competition, we continue to see significant upside to our 20.0p valuation and reiterate our Buy recommendation.
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