03-Dec-2020:  CCZ Equities Research: VEEM Limited (VEE): World class products to lead new industry

Analyst:  Daniel Ireland, [email protected], +61 2 9238 8239

• Recommendation: BUY
• Target Price: 107cps ($1.07)
• Share Price: 70.5cps (03-Dec-2020, 70cps on 04-Dec-2020)
• Market Capitalization: $92m
• Index: None
• Sector: Industrials

Initiating coverage:

• VEEM (VEE) is a longstanding marine technology and propulsion business specialising in components for industrial/mining & defence applications, propellers and marine stabilization. Its marine products are both necessary for, and enhance the functionality of defence, crew transportation, commercial workboats and recreational vessels (superyachts). VEE’s latest disruptive product, the gyrostabilizer (for vessels from ~24m to 90m), reduces the rolling motion experienced by boats due to wind and waves by up to 95%. Gyrostabilizers are set to change marine stabilization, replacing stabilization fins which have been industry standard for many years. VEE Gyros have gained international recognition, validated by orders from the world’s largest shipyards including Damen Shipyards, Van Der Valk, Westport, Feadship and Heesen Yachts.
• Marine stabilization industry experiencing exponential growth: Superyachts alone are an estimated circa ˜$400M (p.a.) market in new build and ˜$1BN-$2BN AUD in retrofit. Fishing vessels, ferries, defence boats, commercial and offshore supply vessels multiply this addressable market. VEE will continue to demonstrate attractive economics (circa ˜16% EBITDA margins by Fy22) enabling the business to compound earnings by expanding operating margins. Facilitated by the new 4,000m2 assembly plant opened in March 2020, CCZ forecasts gyrostabilization revenue to increase materially each year for the next 5 years, reaching 10x 2020 revenues by 2025 (circa $50M).
• Accelerating gyro orders: Orders for VEEM Gyros accelerated in the first 4 weeks of FY21, with an order book of $4.2M USD ($5.9M AUD) by August 2020, exceeding FY20 gyro sales ($4.8M AUD). In late October, the company announced a 3- year supply deal with Damen Shipyards, signalling an inflection point toward full scale production. We expect a step up to 1 large gyro sale per quarter (RRP $1.65M AUD per unit) by FY22, with capacity increases by the end of the FY22 year.
• Substantial revenue growth and PE expansion: We are forecasting VEE to hit +$100M revenue (Up from $44M 2020) by 2025, as manufacturing reaches critical scale. We initiate with a BUY, with the building blocks in place for VEE to have a materially stronger year in 2021, the beginning of a long runway of accelerating revenue and expanding margins. After years of research and development the company has reached an inflection point, with significant increases in revenue expected from the company’s stabilization products.

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