Translation: Original published in Finnish on 11/03/2026 at 08:00 am EET

Modulight's share price has fallen following the Q3 report, even though the report was positive overall and the result exceeded our expectations. The company's story is gradually developing in the right direction, although visibility into the future remains low. Improved earnings and cash flows have also decreased financial risk. We reiterate our EUR 1.15 target price and raise our recommendation to Accumulate (was Reduce), since following the share price decline, we feel the risk/reward ratio has risen to an attractive level.

Q3 report moved the company in the right direction

Modulight’s Q3 revenue grew by 7% and was in line with our estimate. Growth was driven by the PPT business, which doubled to ~0.5 MEUR. Order intake was strong at 3.5 MEUR, and a larger share of the orders than before consisted of product sales rather than R&D. The product development pipeline grew to 37 projects, and according to management, some customers are seeking to accelerate the transition to production. EBIT clearly exceeded our expectations. The beat was driven by low operating expenses and, in part, one-off items such as inventory changes and other operating income (totaling around 0.5 MEUR). Also key is the gross margin, which has improved gradually and is already around 85% on average. This corresponds to the excellent level seen prior to the listing. Free cash flow was in positive territory in the last quarter, which was naturally a very welcome surprise. Cash flow has improved gradually for several quarters, which has reduced financing risk. Net cash at the end of the period was 4.95 MEUR and the equity ratio was 93%. With our current estimates, the cash position is sufficient for cash flow to turn positive.

Estimates unchanged

We keep our estimates unchanged, as the company has not reported any news since the Q3 report. Our current year revenue estimate is 7.2 MEUR, which corresponds to growth in line with guidance and requires revenue of over 2.1 MEUR in Q4. The strong Q3 order intake and the 1.5 MUSD neuroscience pilot production order announced in September support achieving the guidance and our estimates. For next year, we estimate revenue to grow by 36% to 9.8 MEUR and EBIT to improve to -3.0 MEUR. Our estimates assume EBIT turns positive in 2029. Visibility for growth is limited, so surprises in either direction can be significant. Key growth drivers include the transition of customer projects into production, the growth of the PPT business, and, optionally, Aura Biosciences' Phase 3 eye cancer trial, the results of which are expected in H2'27.

Risk/reward ratio turned attractive

Due to the loss-making nature of the business, our valuation relies on the EV/S ratio and DCF calculation. With the share price drop, EV/S multiples have decreased to around 5x and 4x based on 2026-2027 estimates. Multiples require a continuation of the positive trend, for which we believe the conditions are good, given the low starting point for revenue. Our DCF calculation indicates a value of EUR 1.2 per share, and based on the scenarios, the value ranges between EUR 0.3 and 2.4. Risks remain significant, as estimate uncertainty is high, and the financial risk remains elevated despite the positive development. On the other hand, commercial breakthroughs can rapidly lift the growth outlook and acceptable valuation multiples. Overall, we see the risk/reward ratio as attractive again following the share price decline.