BrainChip Holdings Ltd

BRN Details

Orders for Akida: BrainChip Holdings Ltd (ASX: BRN) is the world’s first commercial producer of advanced neuromorphic artificial intelligence chips. The company has recently release top 20 shareholders list, wherein Mr Peter Adrian Van Der Made and Merrill Lynch (Australia) Nominees Pty Limited are the top two holder with the holdings of 9.461% and 6.353%, respectively. BRN also announced that it would be taking orders of two development kits for its Akida™ advanced neural networking processor. The said orders are likely to enable partners, large enterprises, and OEMs to commence internal testing and validation of Akida’s high-performance, small, ultra-low power AI chip.

• BRN has also achieved a US patent 11,151,441 for spontaneous machine learning and feature extraction from the US Patents and Trademarks Office.
• This patent is one of five foundational patents, which BRN has been granted since 2008 to protect its intellectual property rights.

Q3FY21 Financial Summary:

• Delivery of First Batch of Akida: During Q3FY21, the company managed to achieve a major milestone, evident by the delivery of the first batch of production Akida chips from its design partner Socionext.
• Expansion of US Sales Team: Across 2021, the company’s Sales & Marketing team in the US has been expanded as part of its global commercialisation strategy.
• Addition of Cash: During the quarter, the company had a cash addition of US$2.8 million from the issue of shares to LDA Capital in accordance with the Put Option Agreement

1HFY21 Financial Highlights:

• Growth in Revenue: During the half-year, the company recorded revenue amounting to US$767,545 as compared to US$13,397 in 1HFY20.
• Increase in Losses: Loss attributable to members for the half-year amounted to ~US$9.2 million against ~US$6.9 million in 1H FY20.

Losses (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: The company’s business could be impacted by the uncertainties arising from the ongoing pandemic.
• Technology Risk: Any shift in new technology could impact the way of doing business, and hence, its operational performance could be hampered.

Outlook:

• The company is expecting to release the Akida production units and boards to its EAP customers in Q4FY21, which is likely to increase the topline.
• Looking forward, the company would focus on building out its sales and marketing organization in preparation for the official commercial launch of the AKD1000 chip.
• BRN would continue to invest in the R&D necessary in order to bring the next generation of Akida products to market for maintaining its competitive advantage.

Stock Recommendation: The company reported net operating cash outflows of US$4.0 million against net outflows of US$3.1 million in Q2FY21. BRN closed the Q3FY21 with a cash balance of US$23.9 million as compared to US$17.7 million in Q2FY21. The stock of BRN gave a positive return of ~10.46% and ~2.15% in the past one and three months. The stock of BRN is trading at a P/BV multiple of 29.3x as compared to the industry median (Technology) of 9.1x on a TTM basis. Thus, it seems that the stock is overvalued at the current trading levels. As on 21 October 2021, the stock of BRN has a support and resistance level of $0.415 and $0.520, respectively. Considering the valuation on a TTM basis, solid rally in the past few months, RSI levels, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $0.510, as on 21 October 2021, 12:11 PM (GMT+10), Sydney, Eastern Australia.

BRN Daily Technical Chart, Data Source: REFINITIV 

Note: The purple colour line in the chart depicts RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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