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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.
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BluGlass |
Further progress towards commercialisation |
H122 results |
Tech hardware & equipment |
28 February 2022 |
Share price performance
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BluGlassBluGlass is a research client of Edison Investment Research Limited |
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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 |
PBT* |
EPS* |
DPS |
P/E |
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 |
MM 1.2W |
||
420nm |
MM 1W |
|
MM 1.8W |
||
Blue |
450nm |
MM 1.6W |
MM 3.5W |
MM 5W |
|
470nm |
MM 2W |
||||
488nm |
SM 100–200mW |
MM 1.5–2W |
|||
Green |
525nm |
MM 1.5–2W |
|||
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
|
|
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