On Thursday, Nomura/Instinet maintained a positive outlook on iRay Technology Co Ltd (688301:CH), raising its price target to RMB138.78 from RMB136.45, while reiterating a Buy rating on the stock. The adjustment reflects an anticipated 23% upside to the current trading price, despite a reduction in revenue and net profit forecasts for fiscal years 2024 and 2025.
The firm has trimmed its revenue forecasts for iRay by 1.7% for FY24 and 1.9% for FY25 and has also cut its net profit forecasts by 4.7% and 3.1%, respectively. These revisions take into account weaker demand from iRay's healthcare and industrial customers. As a result, Nomura's estimates for iRay's topline and bottom-line are now 11.3% and 17.7% lower for FY24, and 14.1% and 18.0% lower for FY25 than the Bloomberg consensus.
Despite these reductions, Nomura remains confident in iRay's performance. The analyst projects an 8% year-over-year revenue growth and a significant 59% increase in earnings for the third quarter of fiscal year 2024. The expected revenue for 3Q24F is projected at CNY475 million, taking into account both the sluggish demand and the low base from the same quarter the previous year.
The revised price target is based on a discounted cash flow (DCF) method, assuming a weighted average cost of capital (WACC) of 10.4%, up from the previous 9.7%, to account for heightened uncertainty. However, the terminal growth rate remains unchanged at 4.0%. At present, iRay shares are trading at 24.3 times and 19.8 times fully diluted earnings per share (EPS) for FY24F and FY25F, with EPS forecasted at CNY4.64 and CNY5.71, respectively.
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