Korean HELW Contract, German Laser Demo, and RWS Pipeline Drive Buy Case Despite CY25 Losses
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Disclosures for Bell Potter, Electro Optic Systems Holdings Inc., February 23, 2025

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Published February 23, 2026, Bell Potter Securities analyst Baxter Kirk maintains a Buy rating on Electro Optic Systems Holdings Ltd. (EOPSF:OTCMKTS; ESO:ASX), while lowering the 12-month price target to AU$9.70 from AU$12.00, reflecting downward earnings revisions driven by lower revenue expectations, higher costs, and the removal of the conditional Korean contract from forecasts until it becomes unconditional.

CY25 Results

EOS reported a challenging CY25, which Bell Potter characterizes as "a transition year" marked by high interest costs and a low revenue base. Full-year revenue fell 27% year-on-year to AU$128.5m, slightly ahead of Bell Potter's AU$126.6m estimate. Defence revenue declined 30% to AU$115.8m, broadly in line with forecasts, while Space revenue grew 17% to AU$12.7m, materially outpacing the analyst's expectation of a 10% decline.

Gross profit came in at AU$81.4m with a 63% margin, well above the 55% estimate, reflecting the finalisation of a Middle East contract in the first half and stronger-than-expected second-half margins of 57%. EBIT came in at negative AU$53m, missing estimates by 15%, while EBITDA loss of AU$24.4m was slightly better than Bell Potter's AU$25.5m forecast. Reported NPAT was negative AU$62.2m for the full year. Operating cash outflow improved to negative AU$24.2m from negative AU$30.4m in CY24, partially offset by a one-off make-whole interest payment of AU$12.9m.

Earnings Revisions

Bell Potter has materially downgraded EPS estimates across the forecast period, moving from +11.5c/+21.1c/+32.0c to -6.8c/+6.3c/+15.1c for CY26/27/28, respectively. The revisions reflect the removal of the conditional Korean contract from the model until it is made unconditional, deferral of MARSS consolidation to December 2026, tempered revenue growth assumptions, increased gross margin assumptions, and higher operating expenditure.

Full-year revenue is forecast to recover sharply to AU$233.3m in CY26, growing to AU$336.3m in CY27 and AU$402.0m in CY28. EBITDA is expected to reach breakeven at AU$0.2m in CY26 before recovering to AU$34.4m in CY27 and AU$62.0m in CY28.

Key Catalysts and Strategic Outlook

The most immediate near-term catalyst is the US$80m High Energy Laser Weapon (HELW) contract with South Korea, for which the initial deposit and letter of credit have yet to be received. EOS believes this could be concluded in March 2026. Beyond Korea, Bell Potter highlights a pipeline of significant opportunities, including HELW product demonstrations in Germany and the UAE with potential 2027 order timing, a next-generation Remote Weapon System (RWS) demonstration in the Middle East valued at over AU$500m, and US Army follow-on Slinger opportunities.

The analyst specifically flags the German HELW demonstration as particularly significant, given the scale of the potential market and growing government scrutiny over the costs associated with the Rheinmetall/MBDA HELW Joint Venture.

Investment Thesis and Valuation

Bell Potter values EOS using a 50/50 blend of DCF and EV/EBITDA methodologies. The DCF applies a 9.7% WACC, 4.5% terminal growth rate, and 21.7% ROIC, while the EV/EBITDA component applies a 65x multiple. The blended valuation yields AU$9.72 per share. At the current price of AU$7.75, the stock offers an implied capital upside of approximately 25.2% to the AU$9.70 target, with no dividend expected across the forecast period.

Bell Potter notes that EOS is "positioned as a market leader in C-UAS solutions, particularly in directed energy, and is leveraged to increasing budget allocations to C-UAS technologies," with the analyst expecting "positive news flow over the next 6 months stemming from C-UAS and RWS contract awards."

Key Risks

Key risks to the investment case include the lumpy, one-off nature of defence contract revenue with no recurring revenue base; supply chain disruptions; geopolitical shifts that could alter market demand; cash flow volatility from milestone-based contracts; foreign exchange exposure across multiple geographies; product liability and technology risk; regulatory and export control complexity; and competitive pressure from larger international defence primes who may develop superior products or secure key reference programs ahead of EOS.