Date : 17/11/2020

Amaero International Limited

ASX :

3DA

Market Cap : $117.93 Million

Buy

52 Week Range : $0.065 - $0.835

Share Price : $0.71

A very early stage company that has loads of potential. A speculative buy for investors willing to take on the risk.

Company Analysis

 

Amaero International Limited (ASX: 3DA) is an Australian metal 3D printing firm that works with clients from the defence, aerospace, automotive and tools sector. They offer a one-stop-shop that designs and manufactures metal components by operating off factories in Melbourne, Adelaide, and Los Angeles. Amaero began to commercialise by leveraging the metals and alloys technology that was developed by Monash University. The firm continues to work with the university in partnership as they continue to strive for product advancement.

Amaero is Australia’s largest Metal 3D printing company by volume of printers. They are regarded as the most capital efficient and safest metal 3D printers and have 6 of the top 10 Defence companies in the world as their clients. Amaero offers the below services to their clients in the aviation, defence, space, and tooling industries:

  • Access to R&D personnel in the metallurgy, materials engineering & computer simulation fields for the manufacture of metal additive manufacturing.
  • Product designing based on requirements with a reduced development timeline for concept to 3D printed product stage.
  • On-demand manufacturing of customised components of various sizes by way of contract manufacturing.
  • Production of tools for high volume manufacturing.
  • Sale of Amaero’s series of laser powder bed fusion machines and other turnkey solutions for 3D printing.
  • Commercialisation of proprietary alloys for 3D printing.

Amaero is set up to generate both transactional revenue and recurring revenues. Their business model is robust even at a very early stage. Recurring revenues promise consistent and sustainable revenues as the firm grows larger in the coming years. The below picture is how their business model looks


Source: Amaero

Company Updates

The stock listed on the ASX in December 2019. Since the crash in March, the stock has recovered well, and it posted all time highs last month. It currently trades 15% off that high at a price of $0.71. The stock has returned 105% during the year and 330% in the last 6 months.

Amaero has 3D printed the world’s first jet engine and the world’s first 3d printed rocket engine which was later fired as well. The first flying parts that went into the hot parts of turbine engines for military aircraft that are flying in Europe today were also 3D printed by Amaero.

Amaero’s equipment is the world’s most capital efficient according to the firm as they generate 1.5 to 2 times more than their competitors for every dollar that is spent. By February 2021, the firm will also have the largest range of 3D printing size machines – that is, larger than GE or EOS.


Source: Tradingview.com

Since its listing, Amaero has signed a tooling agreement with Fletchers – Australia’s leading insulation company. The firm will be required to raise capital to meet production volume requirements if the agreement is extended based on optimal performance.

Amaero received a purchase order from Samvardhana Motherson Reflectec, a top automotive manufacturer for the manufacture of prototype components. During the quarter ending Sept 30th, Amaero have another order from Gilmour Space Technologies to manufacture two rocket motor components. This project is expected to continue upon successful completion of the initial order.

The firm has launched its new SP260 and SP400 machines and ancillary equipment that can handle more power. Amaero’s Los Angeles facility that is located close to aerospace clients received an AS9100 Aerospace Certification. AS9100 Certification has been deemed as a requirement for growth in the aviation and aerospace manufacturing industry which already has players such as Raytheon, Boeing, and Airbus as Amaero’s clients.

In order to develop an aluminium alloy of super strength, Amaero has recently entered into a Joint Venture Research Agreement with PPK Aust Pty Ltd, and Deakin University. The new alloy is expected to improve the mechanical properties significantly. The alloy has multiple applications and further fortifies Amaero’s concentration on aerospace and defence markets. The process is estimated to commence this month and a validation is expected early next year.

Industry Analysis

The entire 3D printing industry is a very high growth industry that is forecasted to hit US$23.6 billion by 2025 by growing at a compounded annual growth rate of 15.1%.

3D printing has been one of the booming sectors in the past 5 years with technological advancements leading to a wide array of applications as it makes its way into various different manufacturing industries – from products ranging from metal to plastic. Amaero’s operations are a bit niche and they cater to metal 3D printing mainly in the aerospace and defence segments in the huge 3D printing market.

The aerospace market size is estimated to be US$3.6 billion by 2025 by growing at 13.2% annually and the additive manufacturing of tooling market has a CAGR of 11.3% and should grow into US$5.3 billion by 2025. It is clear that Amaero is an industry that has a lot of tailwinds.

Performance & Outlook

At the end of FY2020, 3DA had just over $4 million in cash. During FY2020, 3DA established facilities in the USA and Australia and its PP&E was valued at $7.4 million in the end of year financial statements.

The firm has managed to reduce capital expenditure by close to 30% during the June quarter of 2020. R&D claim of $500k – $600k is expected to be refunded in the December quarter this year.

The total assets of the firm exceed the total liabilities by 2.96x – a healthy metric. The firm has just over $3 million in debt. The capital structure does not raise any red flags either. The firm is capitalized up to 72.4% by equity and 27.6% by debt.

In the short term, Amaero is looking to focus on maximizing its revenue generation by entering markets that have low barriers of entry – such as the automotive and tooling equipment manufacturing, we discussed earlier in this report. In the medium term, the aerospace & defence markets look promising as the new certification opens up potential for more deals.

Contract based machine sales is another area that the firm is looking at and we believe this will be lucrative as well. Once the capabilities of the machines are proven, we expect this to kick on as a lot of manufacturing firms keep their intellectual properties close to their chest and would thus prefer to manufacture their own equipment by leasing machinery.

Recommendation

Amaero is a very early stage company that has loads of potential. It looks like their product works well and has a lot of demand from high profile clients. The financial health is strong. However, it still remains to be seen just how well the firm can commercialise its technology with good margins and become profitable. This is hence, a very speculative stock and we issue a “Buy” recommendation to investors with a high-risk appetite.

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