Transitioning to commercialisation

Mynaric 29 May 2019 Update
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Mynaric

Transitioning to commercialisation

Technology

Scale research report - Update

29 May 2019

Price

€40.0

Market cap

€116m

Share price graph

Share details

Code

MOY

Listing

Deutsche Börse Scale

Shares in issue

2.9m

Last reported net cash at end Dec 2018

€15.2m

Business description

Mynaric is commercialising free space laser communication equipment that uses light to transmit data in high-capacity communication networks in the air and in space.

Bull

Wireless laser technology gives faster data rates than conventional microwave transmission.

Wireless laser technology potentially brings internet connectivity to remote regions.

Mynaric technology is cost effective for mega-constellations.

Bear

Technology not proven in complete communications networks.

Rate of commercial roll-out dependent on network operators securing funding.

Limited number of potential network operators to which it can sell equipment.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

Mynaric is transitioning from a technology company delivering one-off prototypes to delivering reliable product suitable for multiple customers. It remains broadly on track for commercial roll-out in the airborne sector during FY19 and the space sector during FY20, thus positioning it as a key supplier to the mega-constellations of satellites and aerial platforms under development. Consensus estimates have been cut to reflect a more prudent view of delivery volumes.

Transition to serial production

Early in FY18, a communications subsystem from Mynaric was launched on a third-party satellite to enable the first trials of ground-to-space links on a satellite. The first optical ground station for satellite communications successfully passed its site acceptance test, following which Mynaric commenced serial production of both ground-to-air and ground-to-space optical ground stations. As far as management is aware, it remains the only commercial supplier of optical ground stations to have done so. In October, Mynaric announced it had signed a memorandum of understanding with an undisclosed company building a LEO satellite constellation. The first satellites equipped with Mynaric’s terminals are scheduled for launch in 2020. These will be part of a demonstration programme prior to rolling out the full constellation, which will potentially involve several hundred satellites and require more than one thousand Mynaric terminals.

Total operating performance doubles in FY18

Total operating performance (Exhibit 2) more than doubled during FY18 to €7.4m, reflecting substantially higher levels of activity as the company began serial production of ground terminals and intensified development work on space- and air-borne terminals. Losses after tax reduced by 4% to €6.7m. Net cash (there is no debt) fell by €13.2m during FY18 to €15.2m at the year-end. In March 2019, Mynaric raised €11m funding through the issue of shares at €55/share to the lead investor of the LEO satellite constellation mentioned above.

Valuation: Analysis of potential revenues

As Mynaric is still at a pre-commercial stage, we show a scenario analysis looking at potential revenues derived from deployment of the technology in airborne and satellite communications networks of differing sizes. We calculate that a cluster of 250 airborne communications platforms could need €125m of Mynaric’s equipment, and a constellation of 100 small satellites could need €100m.

Consensus estimates

Year
end

Revenue
(€m)

EBITDA
(€m)

EBIT
(€m)

PAT
(€m)

DPS
(€)

P/E
(x)

12/17

1.7

(6.8)

(7.0)

(6.9)

0.0

N/A

12/18

1.6

(6.2)

(6.7)

(6.7)

0.0

N/A

12/19e

4.0

(6.2)

(7.0)

(7.0)

0.0

N/A

12/20e

19.3

0.9

(2.1)

(2.1)

0.0

N/A

Source: MainFirst

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

FY18 technical and commercial progress

At this stage of Mynaric’s evolution, technical progress is more important than financial metrics. In FY18 the company made significant advances in terminals for space deployment, keeping it broadly on track for commercial roll-out in the airborne sector in FY19 and the space sector in FY20. This positions it as a key supplier to the mega-constellations of satellites and aerial platforms under development. Importantly, Mynaric is making the transition from a technology company delivering one-off prototypes to delivering reliable product suitable for multiple customers.

Technical development

Exhibit 1: Product availability

Air-to-air transmitter/receiver

Cross-link terminal

Air-to-ground transmitter/receiver

Ground link terminal

Ground-to-air transmitter/receiver

Ground station

Stratosphere

Tested. Achieved 1Gpbs transmission. Test units available since 2017. Serial production to commence H219.

Tested. Achieved 10GBps transmission. Test units available since 2017. Serial production to commence H219.

Serial production commenced H218.

Space

Critical development milestone reached Jan 2018. Subsystem launched H118.

In development, available 2020 for live trials.

First electronic subsystem in-flight H118.

Serial production commenced H218. Available for delivery now.

Source: Company data

Since January 2018 Mynaric has made substantial progress towards being able to provide customers with reliable product that can be offered in high volume. A communications subsystem was launched on a third-party satellite to enable the first trials of ground-to-space links on a satellite rather than a laboratory environment. The company formed an exclusive partnership with French research institute Leti for the supply of the next generation of Avalanche Photodiodes, enabling Mynaric to reduce the production costs, size, weight and power consumption of its laser communication units. It commenced development of an ultra-lightweight terminal for digital agriculture for delivery in early 2020. The first optical ground station for satellite communications successfully passed its site acceptance test, following which Mynaric commenced serial production of both ground-to-air and ground-to-space optical ground stations. As far as management is aware, it remains the only commercial supplier of optical ground stations to have done so. These developments are discussed in more detail in our November update.

Participation in cyber-security project

In November Mynaric announced it had been selected by UK-based company ArQit to work on an initial study for ultra-secure data delivery from space. The project will validate the delivery of cryptographic quantum keys by satellites, enabling recipients to know that a message has been intercepted and security potentially compromised. Such an ultra-secure system would be of interest to organisations such as banks, insurers, hospitals and governments, which may require an individual optical ground station for every site included in an ultra-secure communication system. Mynaric could become the exclusive supplier of optical ground stations and laser terminals to the project once the first study phase has concluded. The project is being carried out under a public-private partnership between ArQit and the European Space Agency. As well as Mynaric, the ArQit-led industrial consortium includes QinetiQ, BT and the Fraunhofer Institute.

Commercial progress

First memorandum of understanding with satellite constellation builder

In October, Mynaric announced that it had signed a memorandum of understanding with an undisclosed company building a LEO satellite constellation. The first satellites equipped with Mynaric’s terminals are scheduled for launch in 2020. These will be part of a demonstration programme prior to rolling out the full constellation, which will potentially involve several hundred satellites and require more than one thousand Mynaric terminals.

Office in Shanghai addresses Asian market

In November Mynaric announced it was opening a new site in Shanghai to gain better penetration of the booming aerospace market in Asia. This complements its office in Alabama which serves as the Group’s sales and engineering base for the North American market.

New management team

In March 2019 former SpaceX and Airbus VP Bulent Altan joined Mynaric’s management board to lead the space business. He was joined by former Bosch Sensortec VP Hubertus von Janecek, who is leading sales and production of airborne products. Dr Wolfram Peschko has remained on the management board to lead finance, administration and strategy. The changes allow co-founders Markus Knapek and Joachim Horwath, who were previously management board members, to focus on the development of new products and technical innovation.

Move to new building

Mynaric has recently moved to larger, customised premises just outside Munich. This self-contained premises of over 4,500m2 houses a clean room, laboratories, R&D facilities and test equipment to support serial production of laser communication products.

FY18 financials

Customer engagement intensifying

Total operating performance (see Exhibit 2) more than doubled to €7.4m, reflecting substantially higher levels of activity as the company commenced serial production of ground terminals and intensified development work on space-borne and air-borne terminals. This is the most significant metric for Mynaric at its stage of evolution as this includes the value of the increase in finished goods and work in progress and the amount of development activity on projects that are not linked to customer contracts as well as revenues derived from delivered finished product and completed milestones on customer projects.

Exhibit 2: Analysis of total operating performance

FY18

FY17

Notes

Sales revenues (€m)

1.6

1.7

FY18 includes final milestone payments for the first optical ground station that was delivered in the summer, some deliveries of airborne terminals for trials by a US client and studies for half-a-dozen other clients.

(Decrease)/increase in finished goods and work-in-progress (€m)

1.7

0.0

Cost of materials, personnel and overheads of products in production. FY18 level is attributable to commencement of serial production of ground stations.

Other own work capitalised (€m)

3.9

1.2

Cost of development activity on projects that are not linked to customer contracts. FY18 increase reflects intensified activity on the terminal for satellite constellations and new air terminals.

Other operating income (€m)

0.2

0.1

Total operating performance (€m)

7.4

3.0

Source: Company data

The total number of employees has increased from around 40 at the end of December 2017 to around 80 at present as management geared up for commercial production by adding employees in test, production, logistics, procurement, quality control and sales, strengthened the team based in North America and opened an office in China. While personnel costs rose by 81% year-on-year, this was substantially less than the 148% rise in total operating performance, indicating improving levels of efficiency. The cost of materials increased by 125%, which was also at a lower rate than total operating performance while ‘Other operating expenses’ fell by 17%. Losses after tax reduced by 4% to (€6.7m.)

Cash burn

Net cash (there is no debt) fell by €13.2m during FY18 to €15.2m at the year end. In addition to €7.5m cash consumed in operations, the company invested €4.0m in intangible assets, primarily the capitalised costs of manufacturing the satellite terminal, and €1.9m in fixed assets most of which related to fitting out and equipping the new facility, which is rented. In March 2019, Mynaric raised €11m funding through the issue of shares at €55/share to the lead investor of a satellite constellation with which it is working. This is the same satellite constellation as the one referred to in October’s announcement regarding a memorandum of understanding with the builder of a satellite constellation potentially requiring more than 1,000 of Mynaric’s laser communication terminals. The funds will be used to accelerate serial production of Mynaric’s product portfolio and for continued development of its product portfolio.

Outlook: Faster ‘internet-in-the-sky’

Management has not provided formal guidance for FY19. However, recent technical advances put Mynaric in a good place to provide equipment to key projected constellations that are getting closer to actual implementation. Other than the memorandum of understanding with the undisclosed satellite constellation builder, there is very little public information advising whether an individual communications network will be deploying Mynaric’s laser links. We note that Mynaric’s technology can potentially support data rates c 1,000 times faster than conventional microwave links between satellites, substantially improving the economics of a satellite, drone or balloon-based communications network.

Facebook: while Facebook has abandoned its in-house development of an unmanned aircraft for carrying broadband communications links, it embarked on a partnership with Airbus to develop solar-powered drones. We note that Facebook has been confirmed as Mynaric’s partner for the successful air-to-ground test carried out in 2017. In addition, Facebook’s subsidiary, PointView Tech, is building a test satellite, Athena, for launch in 2019. This will have millimetre radio wave connections between the ground and space.

ICEYE: first satellite launched January 2018 and second in December 2018. This will download data gathered by onboard synthetic aperture radar via an optical communications link to BridgeSat’s proposed network of 10 ground stations, the first of which is already operational.

Loon: having used two Loon balloons in late 2017 to provide internet access to remote areas of Puerto Rico following the deactivation of entire cell phone networks by hurricanes, Loon announced its first commercial agreement, which is with Telkom Kenya, in July 2018. In H218 it demonstrated transmission of data to a balloon 20km overhead and then along a network of six additional balloons to complete a journey of nearly 1,000km. It also transmitted data over 600km between two balloons , its longest point-to-point link to date. In April 2019 SoftBank’s HAPSMobile invested US$125m in Loon. The two companies announced a long-term strategic relationship to advance the use of high-altitude vehicles, such as balloons and unmanned aircraft to bring internet access to more remote areas. During H119 HAPSMobile has scheduled test flights for its Hawk 30 solar-powered drone. This will have an operational altitude of over 20km, which is similar to Loon’s balloons.

OneWeb: following the successful launch of its first six demonstration satellites in February 2019, OneWeb secured $1.25bn funding in March. This funding round was led by SoftBank and brings the total funds raised to $3.4bn. Starting in Q419, OneWeb intends to begin monthly launches of more than 30 satellites at a time, creating an initial constellation of 650 satellites to enable full global coverage.

SpaceX: in February 2018 SpaceX launched two demonstration satellites: Tintin A and Tintin B. In March 2018, the Federal Communications Commission (FCC) approved SpaceX’s applications for its planned 4,500 satellite constellation, Starlink. These satellites are designed to communicate with each other using optical links. In November the FCC agreed to SpaceX’s application to launch an additional 7,518 satellites for its Starlink LEO constellation. In December it raised $500m for its Starlink satellite internet service. In May it launched the first 60 demonstration satellites on a single Falcon Heavy rocket. Founder Elon Musk estimates that SpaceX will need another six missions before Starlink can provide consistent internet coverage for small parts of the world and 12 launches before it can provide coverage for a significant portion of the world's population.

Valuation

The share price has fallen by around 17% from a peak of €50.60 in April and is trading around 22% below €54.0/share at the IPO in October 2017. It is likely that the share price performance has been affected by lower than expected revenues during FY18 as management decided to delay moving into serial production of airborne terminals, which it had previously scheduled for FY18, while it made further improvements to the design. We note that consensus estimates have recently been revised down, to reflect lower shipments of airborne terminals during FY19 and a slippage of the first space-borne terminals from FY19 into FY20.

Mynaric is still at the pre-commercial phase and is not expected to be generate operating profit until FY21. This limits the value of any analysis based on peer multiples, which do not ascribe any value for the substantial growth that may be realised from FY20 onwards when many of the proposed mega-constellations that could potentially deploy Mynaric’s terminals are scheduled for launch. It is not surprising therefore that Mynaric’s FY19 EV/sales multiples are at the upper end of our sample of listed peers involved in optoelectronics components and subsystems, all of which are at a later stage of corporate development than Mynaric.

Exhibit 3: Comparison of peer multiples

Name

Market cap (€m)

EV/Sales
1FY (x)

EV/Sales
2FY (x)

EV/EBITDA
1FY (x)

EV/EBITDA
2FY (x)

P/E
1FY (x)

P/E
2FY (x)

Accelink Technologies

2,297

2.8

2.4

29.1

22.8

38.8

30.1

EMCORE

88

0.5

0.5

N/A

10.9

N/A

N/A

Finisar

2,262

1.6

1.5

9.4

7.2

21.8

15.9

Infinera

511

0.5

0.5

N/A

5.9

N/A

N/A

IntelliEPI Inc (Cayman)

60

2.5

N/A

N/A

N/A

23.5

18.7

Lumentum Holdings

3,078

2.3

2.0

8.9

6.3

10.9

9.7

NeoPhotonics

164

0.5

0.4

10.8

3.5

N/A

17.7

Visual Photonics Epitaxy

390

5.8

4.6

16.0

12.4

29.1

20.6

Mean

2.1

1.7

14.8

9.9

24.8

18.8

Mynaric

116

25.2

5.2

N/A

112.0

N/A

N/A

Source: Refinitiv. Prices at 28 May 2019.

We supplement the peer-based approach with a scenario analysis (Exhibit 3) showing potential revenues achievable if the technology is deployed in communication systems of different sizes. We split the analysis into two types of system. The first looks at communication networks based on smaller LEO satellites, which typically have more than 100 satellites each. The second looks at communication networks based on many more, less expensive platforms, which may be UAVs (unmanned aerial vehicles), aircraft or balloons. A communications satellite has space-qualified terminals, which are more expensive than those on an airborne platform.

Exhibit 4: Analysis of potential revenues

Internet LEO system

Cost of payload* (€m)

2

2

2

2

% payload composed of Mynaric systems

50%

50%

50%

50%

Number of satellites in constellation

50

100

200

300

Revenues attributable to Mynaric (€m)

50

100

200

300

UAV, aircraft, balloon-based system

Cost of payload (€m)

1

1

1

1

% payload composed of Mynaric systems

50%

50%

50%

50%

Number of platforms in constellation/cluster

50

100

250

500

Revenues attributable to Mynaric (€m)

25

50

125

250

Source: Edison Investment Research. Note: *Payload is the part carrying out the communications or sensing function.


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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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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

1,185 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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