Company Overview: BrainChip Holdings Ltd (ASX: BRN), formerly known as Aziana Limited, is an Australian-based information technology company, which is engaged in the development of neural computing technology. It was incorporated in 2011. The headquarter of the company is situated in Perth, Australia and is being currently headed by Mr. Louis DiNardo – the CEO. The company is a leading software and hardware accelerated solutions company for advanced AI and machine learning. It offers various products such as civil surveillance and casino solutions. Of which, the civil surveillance solutions provide law enforcement, homeland security, and intelligence agencies to recognize the objects or faces in large amounts of archived or live streaming videos.
 

BRN Details

Akida - The Next Growth Driver: BrainChip Holdings Ltd (ASX: BRN) has recently unveiled the availability of Akida development environment which includes a data-to-spike converter for pixel-based vision systems and this evolves as the company works with early adoption customers to include incremental converters. The Akida development environment is a complete machine learning framework for the revolutionary Akida Neuromorphic System-on-Chip (NSoC) and it is on the right track to refining the product definition and its execution. Besides this, the company has recently delivered “Software Kernel” to a major automobile manufacturer in Europe whose feedback is important for further execution which will support to improve architectural insights and the development of application-specific learning rules. On the other hand, the group hopes to move to an FPGA hardware execution on plan amid the third quarter of 2018, and in addition, having an advancement situation accessible for key clients to create Spiking Neural Network (SNNs) on Akida platform. As of now, the group’s engineering resources are focused on the refinements of pattern recognition for the GPI deployment and on the development of its revolutionary AKIDA Neuromorphic System-on-Chip (NSoC). Following this, the group is expected to become a market leader in the emerging neuromorphic computing field, with multiple applications including robotics, gaming, surveillance, cybersecurity, financial technology, IoT and autonomous vehicles (AV); including Advanced Driver Assisted Systems (ADAS). As per the Markets and Markets 2015 Report, the Neuromorphic integrated semiconductor market is expected to be US$4.8 Bn in 2022 with a CAGR of 26.3% between 2016 and 2022. Given the scenario, Akida is holding the benefits of low-latency and low-power features and is relied upon to empower the organization to catch significant market share in the high-growth arena.


AKIDA Neuromorphic Processor SOC (Source: Company Reports)

Strategic Partnership with Telesikring – will support topline growth: The group has recently entered a strategic partnership with Telesikring for the purpose of securing first Technical Sales Partner in Scandinavia. This joint deal will cater to the law enforcement requirements and in addition, end users will be able to efficiently classify suspects in a faster manner with the help of BRN’s BrainChip Studio, an award-winning AI-powered software platform for object recognition and facial classification that was launched last year. Under the terms of the partnership, Telesikring will agree to promote, install, and support BrainChip’s growing portfolio of AI-powered software and hardware solutions across their existing and new video security customer base. This paves the path for an integrated analytics solutions’ platform for video security and surveillance. BRN thus aims to benefit from the growing Danish security market based on video surveillance services, and this is estimated to grow to DKK 845 million (circa US$ 133 million) by 2022. We expect that this partnership will boost BrainChip’s presence in the Scandinavian video surveillance and security industry, which intends to extend across the region.

High-quality, global customer base across multiple industry segment: The company sells its product through original equipment manufacturers (OEMs), integrators, and other partners. This capital efficient model is expected to accelerate sales and reduce the capital required to build a large direct sales force. Moreover, the company has a strong clientele base across the globe. Some of the high-quality customers are: Police Nationale, Advisian, Rockwell Collins, Cisco, Airbus, Safran, Mohegan Sun, etc.


High-Quality Customer Base (Source: Company Reports)

Financial Performance: The company reported consolidated revenues of US$ 505,001 for the half-year ended 30 June 2018, an increase of 279% over the prior corresponding period. This increase was largely attributable to revenues recognized in the current year from the GPI agreement. The net loss of the company was US$8,770,180 in 1HFY18, compared to a restated net loss of US$ 6,103,481 in 1HFY17. The net loss for the prior year has been restated because of finalization of the acquisition accounting adjustments for BrainChip SAS in 2017. On the balance sheet front, the Group had consolidated net assets of $14,261,673 (1HFY17: $18,066,470) which included the cash reserves of $11,892,002 (1HFY17: $16,049,330). The current ratio substantially increased from 4.60x to 12.09x in 1HFY18 from the prior corresponding period. Further, the company has substantially reduced its account receivable days from 572 days to 193 days which indicates efficient management policy. Fixed asset turnover ratio also spiked up from the level of 0.77x to 2.51x in 1HFY18 from the prior corresponding period. It indicates the high efficiency in which the company generate sales from its low fixed asset base. No dividends were paid or declared during the half-year ended 30 June 2018.


1HFY18 - Consolidated P&L (Source: Company Report)

Positive Outlook: In our view, the company has a lot of potential to grow further at the back of decent cash position with virtual debt-free status, strong collaboration with Telesikring, Veritone Inc, Gaming Partners International Corporation, and Safran Electrical & Power, and holds high-quality customer base. As of now, the group is pursuing the next phase of its growth vision which is to provide a best-in-class AI processor based on its proprietary technology. With the production releases of BrainChip Studio and Accelerator, the company has now been able to build its sales infrastructure. The group expects continued sales growth with OEMs, System Integrators and End Users in 2018. The Company currently supports approximately 30 committed or active trials and most are covered by Non-Disclosure Agreements. Below are graphic representations of the Company’s Served Available Market (SAM) and the potential Share of Market (SOM), which represents the annual potential revenue based on publicly available market data and Company estimates. It is anticipated that the Group will further develop its BrainChip Studio and related software products and will progress the development of its AKIDA Neuromorphic Processor Unit product.


Segment-wise market size (Source: Company Report)

Other Key Updates: Recently, the company announced the departure of Ryan Benton as Chief Financial Officer, effective from 14 September 2018. In the meantime, he will continue as a consultant to the Company during a search for his replacement and a transition to new leadership. Besides this, the company disclosed the result of Annual General meeting (AGM) wherein the shareholders of the company have approved several resolutions such as adoption of remuneration report, election of Steve Liebeskind and Adam Osseiran as directors of the company, grant of performance rights to Louis DiNardo, new BrainChip long-term incentive plan, increase in non-executive directors’ fees, and approval of 10% placement facility.

Stock Performance and Analysis: BRN shares have generated a negative year to date return of 22.50% but the stock has respected its long-time support line of $0.101. BRN was seen to be falling about 11.4% in last five trading days when the announcement on management changes was made. A ‘falling wedge’ pattern has been formed on the charts which usually is a bullish signal, given it is supported by the volumes and no deviation is seen in the supporting momentum indicators. Any advance towards $0.190 would take the stock higher. Current level offers a decent entry point for the investors who are looking for risk-to-reward ratio. On the analysis front, the company has price-to-book value ratio of 7.69x, and this may look to be on a higher side. However, by looking its strategic movement towards business development via organic and inorganic routes, we believe that the group has a lot of potential to grow, underpinned by various tailwinds expected in the upcoming period. Moreover, BRN is also making efforts to improve its ROE. As of now, the company’s sales pipeline continues to grow and now includes over 500 leads, 55 qualified opportunities and 16 design wins. Given the backdrop of aforesaid facts along with financial performance and its capital position, the stock has room to grow from the current levels and therefore we give a “Speculative Buy” recommendation on the stock at the current market price of $ 0.160 (up by 3.226 percent on September 07, 2018).


BRN Daily Chart (Source: Thomson Reuters)

 
Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.