Rakon has reported a weak first half and warned that the rest of its year could be worse than forecast in July.
Net profit fell 97 per cent to $500,000 and revenue fell by one-third to $61.3 million as a jump in space and defence revenue failed to offset a worse-than-expected slump in its telco business.
Underlying ebitda, which fell 81 per cent to $5.3m, was framed as being in line with lowered guidance issued in July, when the firm warned of a slowdown in telecommunications — its largest single market. Forsyth Barr analysts James Lindsay and Will Twiss had been bracing for a 71 per cent slide to $8.3m.
The July warning said underlying earnings would take a $10m hit from the telco slowdown, with its full-year underlying ebitda forecast lowered to a range of $16-$24m — or a third below previous guidance.
Today, Rakon warned in an NZX filing, “Following further dialogue with customers, and a number of recent peer and customer announcements, Rakon now believes the risk to FY24 guidance is higher than the $10 million”. The $10m figure implied underlying ebitda of $16-$24m. Underlying ebirda is now forecast to be $13-$19m.
The Auckland-based firm, which turns quartz crystals into radio frequency control systems that help telecommunications gear, satellites, missile guidance systems and emergency beacons maintain the same “heartbeat” as other electronics, said a recovery in telecommunications was taking longer than anticipated, with customers such as infrastructure players Nokia and Ericsson buying less Rakon gear as their telco customers delayed or slowed 5G network upgrades amid the global economic slowdown. Telco revenue was down a third to $34.2m.
With a low-Earth orbit satellite space race, and an unstable world, space and defence was a rare bright spot in the first half, with revenue up 24 per cent to $15m.
Expenses rose 1.6 per cent, net cash fell by a third to $13.4m. Rakon also blamed the end of “one-off contracts” that saw it gain an advantage from a chip shortage during the period of pandemic supply chain disruption.
Following pressure from minority shareholder Mike Daniel, Rakon announced its first-ever dividend as its full-year result was announced in May - albeit at a modest 1.5 cents per share. There was no dividend for the first half. But the board said it anticipates that the level of dividend declared at the FY23 announcement is “sustainable through current macroeconomic pressures and three-year growth plan”.
In a June 20 note, Forsyth Barr said Rakon’s newly opened “new state-of-the-art” research and manufacturing facility in Bengaluru, India, would add flexibility and increase margins. The firm also recently upgraded its manufacturing facility in Auckland.
Chief executive Sinan Altug said “fundamental growth drivers”, including 5G upgrades, the growth in AI and the growth of low-Earth orbit satellite networks, were still strong and would benefit Rakon in the long term.
Rakon shares were down 4.35 per cent to 66c in late morning trading.
The stock is down 46 per cent for the year.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.