LEM Holding: How sustainable is the Q1 beat?

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LEM Holding: How sustainable is the Q1 beat?

LEM Holding UBS Research

Estimate changes

Following today's strong set of Q1 numbers, we revise our estimates, raising our EPS

numbers by 28%/15%/6% respectively for FY27/28/29. We continue to expect a

sequential deceleration in H2 26/27, but see strong momentum for Q2, bringing our top

line estimates up by 5% on average. This is driven mostly by two divisions, Automation

and Energy Distribution and High Precision (EDHP), both of which showed significant

growth rates in Q1 (29% and 56% yoy respectively). We see Q2 momentum as

sustained given further improved book to bill ratio of 1.23x from 1.16 in Q4 26.

However, we refrain from annualizing these numbers into the remainder of FY26/27, as

we believe part of the beat was driven by geopolitical uncertainties leading to pre-

buying.

We see margins as the bigger surprise though. While gross margins stabilized at 40.0%,

EBIT margin saw a material improvement to 14.6% in Q1, vs 8.4% in Q4, bringing EBIT

margins comfortably within the company's mid term guidance range of 10-15%. We

see several factors at work, driving the margin beat: Firstly, management had

successfully implemented its cost program, with SG&A down 6% yoy. Secondly, capacity

constraints mostly from electronics meant that the company started to prioritize high

margin business, and lastly, we believe business mix was supporting margins, with

Automation outperforming.

Going forward, we pencil in flattish gross margins, as better capacity utilization should

be offset by input cost inflation. However, on EBIT margins we would expect rising input

cost inflation from electronics and logistics to more than offset potential further

optimization of the business mix. We also would mention that despite rising book to bill