I agree with you, but in this case I think it’s a bit different.
From what I’ve seen, most companies that trade at a discount due to China exposure either produce in or operate out of China. SMT, on the other hand, primarily sells to chinese businesses.
So yes, there’s still a certain level of dependence, but I wouldn’t call it the typical kind of China exposure you see with other companies.
How did you get to a P/E of 17.5? Would be great if you could walk me through it, so we can figure out where either of us might be off.
Based on LTM, EPS is €1.16. With the current share price around €7, that puts the P/E at about 6.0.
And even then, I actually think they’re much cheaper than they look. I’m not sure I emphasized this point enough in my write-up, but as I stated operating income and margins took a hit during the transition phase. If “other operating expenses” had stayed at 2023 levels, operating income would be about €6–7M higher, basically double what it is now.
That would also push net income up significantly, likely into the €10–12M range, which would put the P/E closer to 3.5.
They’re also targeting an EBIT margin of ~10%. Sure, that’s just a target for now, but it’s meaningfully higher than current levels, and I think it’s achievable.
On top of that, the Xinsha consolidation should boost revenue and earnings in 2025, and their deeper ties to the Chinese market could lead to new orders and additional upside going forward.
Fascinating pitch. Also tracks with three narrative reversals: coal won’t be gone anytime soon, China and western capital markets can’t actually decouple, and Germany won’t de-industrialize.
Not exactly. Here's what actually happened: SMT reported €6.36m in net income for the last twelve months (LTM), which already includes a partial consolidation of Xinsha starting in November 2024. Xinsha generated approx. €9.5m in profit over the full year 2024, but only two months of that are reflected in SMT’s consolidated results.
Also important: this wasn’t an equity swap. SMT has owned 50% of Xinsha since 2015. What changed in November 2024 is that SMT gained control via governance rights, so they now fully consolidate Xinsha in their financials, even though ownership still remains at 50%.
Regarding EBIT: SMT’s reported EBIT of €4.8m in 2024 is low because it includes only part of Xinsha’s EBIT, and one-off integration costs. For 2025, SMT guides for up to €7.5m in EBIT, assuming a full-year consolidation of Xinsha.
So yes, €7.5m EBIT is a reasonable base assumption for the consolidated group, but not SMT + Xinsha separately.
Any insight into why the stock price dropped so sharply mid 2023?
That’s when they started announcing that a new majority shareholder would be coming in, which made the market nervous.
Investors often value companies with a strong dependence on China and Chinese owners at a discount. I think this is the reason for the low valuation.
I agree with you, but in this case I think it’s a bit different.
From what I’ve seen, most companies that trade at a discount due to China exposure either produce in or operate out of China. SMT, on the other hand, primarily sells to chinese businesses.
So yes, there’s still a certain level of dependence, but I wouldn’t call it the typical kind of China exposure you see with other companies.
I don’t really get how this is cheap. I mean they’re trading at a 17.5 P/E with my calculations but maybe I’m wrong?
They’re saying 110-130m EBIT with 5,45% ebit-margin that’s about 6.5 mio. And I would say about 0.32 cents per share?
Hey Nick,
How did you get to a P/E of 17.5? Would be great if you could walk me through it, so we can figure out where either of us might be off.
Based on LTM, EPS is €1.16. With the current share price around €7, that puts the P/E at about 6.0.
And even then, I actually think they’re much cheaper than they look. I’m not sure I emphasized this point enough in my write-up, but as I stated operating income and margins took a hit during the transition phase. If “other operating expenses” had stayed at 2023 levels, operating income would be about €6–7M higher, basically double what it is now.
That would also push net income up significantly, likely into the €10–12M range, which would put the P/E closer to 3.5.
They’re also targeting an EBIT margin of ~10%. Sure, that’s just a target for now, but it’s meaningfully higher than current levels, and I think it’s achievable.
On top of that, the Xinsha consolidation should boost revenue and earnings in 2025, and their deeper ties to the Chinese market could lead to new orders and additional upside going forward.
I was assuming 0.08 cents per share on the last 3 months out of their last quarterly results. So I don’t get how you‘re getting 1.16€ for this year?
This was just flying over the report maybe I missed something
Fascinating pitch. Also tracks with three narrative reversals: coal won’t be gone anytime soon, China and western capital markets can’t actually decouple, and Germany won’t de-industrialize.
Totally agree! I also think those are strong factors that give SMT some solid resilience.
MONORAIL! MONORAIL!
https://youtu.be/taJ4MFCxiuo?si=l5599_aBEF80tnkm
On a more serious note.
Are you saying SMT made 6m in profit. and Xinsha made 9.5m in profit.
Smt traded half of its stock for half the stock of xinsha.
So Total normalized consolidated ebit should be 7.5m?
Not exactly. Here's what actually happened: SMT reported €6.36m in net income for the last twelve months (LTM), which already includes a partial consolidation of Xinsha starting in November 2024. Xinsha generated approx. €9.5m in profit over the full year 2024, but only two months of that are reflected in SMT’s consolidated results.
Also important: this wasn’t an equity swap. SMT has owned 50% of Xinsha since 2015. What changed in November 2024 is that SMT gained control via governance rights, so they now fully consolidate Xinsha in their financials, even though ownership still remains at 50%.
Regarding EBIT: SMT’s reported EBIT of €4.8m in 2024 is low because it includes only part of Xinsha’s EBIT, and one-off integration costs. For 2025, SMT guides for up to €7.5m in EBIT, assuming a full-year consolidation of Xinsha.
So yes, €7.5m EBIT is a reasonable base assumption for the consolidated group, but not SMT + Xinsha separately.
What do you think about margin pressures when you supply to your owner? For engineering companies, that has not been a good environment to operate in.