Bluglass Open Day (LR)-22

Further progress towards commercialisation

BluGlass 28 February 2022 Update
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BluGlass

Further progress towards commercialisation

H122 results

Tech hardware & equipment

28 February 2022

Price

A$0.032

Market cap

A$32m

Net cash (A$m) at end December 2021 excluding finance leases

6.2

Shares in issue

1,005.2m

Free float

87.1%

Code

BLG

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.9)

(5.7)

(56.0)

Rel (local)

(3.3)

0.3

(57.0)

52-week high/low

A$0.08

A$0.03

Business description

BluGlass is an Australian technology company that is developing and commercialising a breakthrough compound semiconductor technology for the production of high efficiency devices such as laser diodes, light emitting diodes (LEDs) and micro-LEDs.

Next event

Q322 results

April 2022

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

BluGlassBluGlass is a research client of Edison Investment Research Limited

During H122, BluGlass focused on laser diode development, primarily on improving the reliability of its first-generation product. Recent performance data from prototypes demonstrated commercial light-output results and was very positively received by potential customers. BluGlass remains on track to launch its first laser diodes by mid-calendar 2022.

Year end

Revenue (A$m)

EBITDA
(A$m)

PBT*
(A$m))

EPS*
(c)

DPS
(c)

P/E
(x)

06/18

0.7

(3.8)

(3.8)

(0.97)

0.00

N/A

06/19

0.4

(5.1)

(5.1)

(1.21)

0.00

N/A

06/20

0.7

(3.6)

(4.8)

(1.01)

0.00

N/A

06/21

0.4

(4.6)

(6.8)

(0.94)

0.00

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Significant performance improvements demonstrated

During H122, BluGlass demonstrated significant performance improvements for four prototypes operating at 405nm and 420nm wavelengths, which is an in-demand and underserved market segment. These related to changes to the cleave processes, which create the laser facets from which light is emitted, and improved bonds between the laser chip and associated package, which are better at conducting heat away from the chip, thus enabling high performance throughout the lifetime of the device. These modifications to manufacturing processes are also delivering higher manufacturing yields. Feedback on recent performance data from potential customers at the Photonics West conference in January was very positive.

Higher costs as laser diode activity intensifies

Revenues are currently derived entirely from epitaxy services. These halved year-on-year during H122 to A$0.1m because of coronavirus-related effects in Europe and the US. The cost of consumables and personnel expenses were higher, reflecting higher levels of R&D activity on laser diodes and support for the third-party laser diode packaging activities in the US, so EBITDA losses widened by A$0.8m to A$2.9m. Stripping out A$3.6m relating to an R&D tax refund and government grants, operating activities during H122 consumed A$5.3m cash, leaving A$6.2m cash at the end of December. Management has not confirmed that these fund-raising activities will provide a cash runway through to initial customer revenues from laser diodes. There is no debt other than lease liabilities.

Valuation: Aiming to secure 6–10% of global laser diode market

While management has not provided formal guidance, it aims to secure 6–10% of the global laser diode market by 2026, which it estimates will then total more than US$735m (A$1,021m). This represents annual revenues of around A$60–90m. This level of market penetration is dependent on BluGlass successfully completing the development of the second generation of higher-performance laser diodes using its remote plasma chemical vapor deposition (RPCVD) technology. BluGlass already has the epitaxial capacity to support annual sales of US$170m.

Developing the direct-to-market laser diode portfolio

As discussed in our October update, BluGlass had hoped to start shipping samples of its first-generation laser diodes by the end of June 2021. At that time, tests on the initial tranche of packaged prototype devices showed lasing results consistent with commercial specifications for output power and wavelength, demonstrating the soundness of BluGlass’s epitaxial process. However, when these prototypes went through reliability testing, they showed a gradual loss of light output over time, which did not meet with commercial specifications. Since then the company has been focused on improving product reliability, with multiple design and development iterations of devices progressing through the supply chain. As a result of this intensive activity, it has been able to demonstrate significant performance improvements across four prototypes: the 405nm and 420nm laser diodes in both single-mode (SM) and multi-mode (MM) devices, keeping it on track to meet its revised goal of launching its first direct-to-market laser diodes in mid-calendar 2022.

Exhibit 1: Laser diode product pipeline

Colour of light emitted

Wavelength

Demonstrated

In development

Next generation

Violet

405nm

MM 1W
SM 100–200mW

MM 1.2W
SM 250mW

420nm

MM 1W
SM 100–200mW


SM 250mW

MM 1.8W

Blue

450nm

MM 1.6W
SM 100–250mW

MM 3.5W

MM 5W

470nm

MM 2W

488nm

SM 100–200mW

MM 1.5–2W

Green

525nm

MM 1.5–2W
SM 100–200mW

Source: Company data

The feedback on recent performance data for the four prototype devices from potential customers at the Photonics West conference in January was very positive. This reflects customer demand for products at 405nm and 420nm, which is an underserved and fast-growing part of the laser diode market, as well as interest in BluGlass’s intention to offer devices in a greater range of form factors than its competitors.

In addition to the progress on commercialising the first-generation diodes, in H122 the company successfully demonstrated the world’s first working tunnel junction laser diodes manufactured using its proprietary RPCVD technology (described in our initiation report); strengthened the management team with several laser diode experts, most notably new president James (Jim) Haden (see our October update); and secured a paid development contract from a European wafer developer to provide epitaxy for custom power applications. This contract, for an undisclosed amount, will generate foundry revenue for a six-month period starting in January 2022 and could lead to a commercial manufacturing agreement generating significant revenue.

Losses widen as group gets ready for first shipments of laser diodes

Revenues up to this point (see Exhibit 2) have been derived entirely from epitaxy services. Revenues from customers halved year-on-year during H122 because EpiBlu foundry orders were delayed by continued coronavirus-related effects in Europe and the US. The cost of consumables rose by A$0.3m, reflecting higher levels of R&D activity on laser diodes. In addition, income from the Job Keeper programme and other government grants was lower, while personnel expenses were higher, reflecting support for the third-party laser diode packaging activities in the US, so EBITDA losses widened by A$0.8m. Reported losses after tax widened by A$0.9m to A$4.6m. EPS losses reduced by 8% to 0.47c/share because of the dilutive effect of an oversubscribed entitlement offer to existing shareholders and placement raising A$6.1m (net) at A$0.03/share in July.

Stripping out A$3.6m relating to an R&D tax refund and government grants, operating activities during H122 consumed A$5.3m cash, leaving A$6.2m cash at the end of December. There is no debt other than lease liabilities relating to the main warehouse and office because a A$2.0m loan facility provided by Radium Capital was repaid in full in July 2021. While investment in property, plant and equipment had been minimal (A$74k) in H121, it totalled A$0.4m in H122 because the US facility was upgraded with test equipment and a cleanroom to speed up testing of laser diodes. All R&D activity is expensed. The A$1.7m reduction in trade and other receivables relates to the R&D tax rebate provided by the Australian government.

Exhibit 2: H122 and H121 performance compared

A$000s

H122

H121

Sales revenue

116

220

R&D tax rebate and government grants

1,897

1,996

Consumables

(2,011)

(1,726)

Other expenses

(2,873)

(2,611)

EBITDA

(2,871)

(2,121)

Depreciation and amortisation

(1,092)

(1,079)

Share-based payments

(585)

(448)

Reported operating loss

(4,548)

(3,648)

Finance costs (net)

(73)

(37)

Reported loss before tax

(4,621)

(3,685)

Tax

0

0

Reported loss after tax

(4,621)

(3,685)

Reported EPS (c)

(0.47)

(0.51)

Source: Company data

Valuation

Aiming to secure 6–10% of the laser diode market by 2026

While management has not provided formal guidance, it aims to secure 6–10% of the global laser diode market by 2026, which it estimates will then total A$849m. This would represent annual revenues of around A$60–90m. In our opinion, BluGlass will need to complete the development of its next-generation, higher brightness laser diodes manufactured using RPCVD for certain key epitaxial layers to achieve these levels of market penetration. The scenario analysis presented in our initiation note calculates that this level of revenues would generate EBITDA of A$14.1–21.6m.

Exhibit 3: Financial summary

A$'000s

2018

2019

2020

2021

30-June

AASB

AASB

AASB

AASB

INCOME STATEMENT

Revenue

 

 

714

425

656

364

Cost of Sales (excluding direct labour)

(1,158)

(1,745)

(1,898)

(3,070)

Gross Profit

(444)

(1,320)

(1,242)

(2,707)

EBITDA

 

 

(3,750)

(5,109)

(3,616)

(4,624)

Operating profit (before amort. and excepts.)

 

(3,941)

(5,287)

(4,687)

(6,757)

Amortisation of acquired intangibles

0

0

0

0

Exceptionals

0

(8,695)

0

0

Share-based payments

(56)

(674)

(1,237)

536

Reported operating profit

(3,997)

(14,656)

(5,925)

(6,221)

Net Interest

157

236

(69)

(78)

Profit Before Tax (norm)

 

 

(3,784)

(5,052)

(4,757)

(6,835)

Profit Before Tax (reported)

 

 

(3,840)

(14,421)

(5,994)

(6,298)

Reported tax

0

0

0

0

Profit After Tax (norm)

(3,784)

(5,052)

(4,757)

(6,835)

Profit After Tax (reported)

(3,840)

(14,421)

(5,994)

(6,298)

Average Number of Shares Outstanding (m)

389.4

418.3

473.1

724.6

EPS - normalised (c)

 

 

(0.97)

(1.21)

(1.01)

(0.94)

EPS - normalised fully diluted (c)

 

 

(0.97)

(1.21)

(1.01)

(0.94)

EPS - basic reported (c)

 

 

(0.99)

(3.45)

(1.27)

(0.87)

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

29.8%

-40.5%

54.5%

-44.6%

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Normalised Operating Margin

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

8,954

5,395

7,883

5,840

Intangible Assets

8,695

0

0

0

Tangible Assets

259

5,395

7,883

5,840

Investments & other

0

0

0

0

Current Assets

 

 

17,716

8,558

8,547

7,718

Stocks

54

137

140

131

Debtors

2,253

2,262

2,919

3,351

Cash & cash equivalents

15,354

6,116

5,430

4,176

Other

55

43

58

59

Current Liabilities

 

 

(963)

(1,003)

(1,154)

(3,378)

Creditors

(530)

(473)

(408)

(566)

Lease liabilities

0

0

(168)

(184)

Short term borrowings (excluding lease liabilities)

0

0

0

(1,954)

Provisions

(433)

(530)

(578)

(674)

Long Term Liabilities

 

 

(318)

(1,306)

(2,882)

(2,670)

Long term borrowings (excluding lease liabilities)

0

0

0

0

Provisions and lease liabilities

(318)

(1,306)

(2,882)

(2,670)

Net Assets

 

 

25,389

11,644

12,393

7,509

Minority interests

0

0

0

0

Shareholders' equity

 

 

25,389

11,644

12,393

7,509

CASH FLOW

Operating Cash Flow

 

 

(3,514)

(4,931)

(4,348)

(4,809)

Capex

(114)

(4,308)

(1,681)

(90)

Acquisitions/disposals

0

0

0

0

Net interest

0

0

(9)

0

Equity financing

10,471

1

5,507

1,859

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

6,843

(9,237)

(532)

(3,040)

Opening net debt/(cash)

 

 

(8,511)

(15,354)

(6,116)

(5,430)

FX

0

0

0

0

Other non-cash movements

0

0

(154)

(168)

Closing net debt/(cash)

 

 

(15,354)

(6,116)

(5,430)

(2,222)

Source: Company accounts


General disclaimer and copyright

This report has been commissioned by BluGlass and prepared and issued by Edison, in consideration of a fee payable by BluGlass. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by BluGlass and prepared and issued by Edison, in consideration of a fee payable by BluGlass. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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