Biohit H1'25: Bar set high for the rest of the year

Translation: Original published in Finnish on 8/6/2025 at 6:45 pm EEST.

Biohit's H1 remained at the comparison period's level and fell short of our estimates. The situation in the Middle East has caused headwinds, but the worst of the setbacks should already be behind. Otherwise, the business appears to be on a healthy growth trajectory. We slightly lower our near-term estimates, but on the other hand, we revise our long-term expectations upwards. We reiterate our Accumulate recommendation and raise the target price to EUR 3.4 (was EUR 3.2) in line with long-term estimate changes.

Growth stalled in H1

Biohit's H1 revenue was 7.4 MEUR, which was at the same level as the comparison period H1'24. Growth clearly fell short of both our forecast (8.3 MEUR) and the company's guidance (revenue growth 2025: 10-20 %). The main reason for the weak growth was problems that started at the end of the year related to the escalated situation in the Middle East. Deliveries were on hold for almost the entire H1 and only restarted at a lower level in June. For other markets, the company reported a 14% increase, which we believe is a good performance. New distribution agreements and a new product launch announced earlier in the year did not yet bring growth at this stage. Geographically, growth was seen particularly in Asia, led by China.

The company reiterated its guidance for 10-20% growth in 2025, which sets the bar high for the rest of the year. We view a revenue guidance downgrade as possible, but quite unlikely regarding profitability (EBIT at least 10% of revenue).

Profitability remained very strong

Biohit's EBIT for H1 was 1.2 MEUR, which was 10% below the comparison period and slightly below our forecast (1.32 MEUR). The EBIT margin was at a healthy level of 15.9%. Biohit's gross profit has varied by reporting period, depending particularly on the sales mix (own production vs. OEM sales). This time, the gross profit was better than our expectations, which explains the result hitting close to our estimates despite low revenue. The temporary reduction in inventories had a supportive effect on the gross profit. Operating costs were in line with our expectations.

On the balance sheet, the "contract assets" that rapidly increased to 5.6 MEUR from H1’24 onwards raised questions. Based on the annual report and management's comments, the item relates to the China distribution agreement and receivables from the Chinese market. Biohit has 1.5 million shares pledged to mitigate the risk of receivables. In terms of the cash flow statement, working capital increased significantly related to the above item (-2.5 MEUR). For this reason, operating cash flow remained negative at -1.3 MEUR. The rapid growth of this item has, in our view, raised the risk level. At the same time, external visibility into the situation's development is poor.

Short-term forecast cuts – long-term increases

Our forecasts for the next few years are decreasing moderately as business grows slightly slower than we expected. However, we believe that the longer-term drivers are completely unchanged, and we have made moderate upward revisions to the longer-term growth outlook.

Valuation remains on the attractive side

The share's P/E multiple based on 2026 estimates is 18x. The 2026 EV/EBIT multiple of 12x, which takes into account the strong balance sheet, is attractive in our view, even though the uncertainty of the forecasts is high. The multiples are clearly below those of global large-cap peers (2026 EV/EBIT 18x), which we think is exaggerated, even though Biohit's risk profile is higher. In our view, the stock is also reasonably priced in terms of EV/S (2026 EV/S: 1.9x) and cash flow, and the valuation includes a safety margin. Thus, we believe that the reward/risk ratio is attractive.