Titomic Limited: The World’s Largest 3D Metal Printer
Wentworth Securities
In Melbourne this week TTT will host the launch of the world's largest and fasted 3D metal printer (Wed/Thur), built using the proceeds of its $0.20 IPO back in Sept 2017. TTT has traded to $2.94 today (+1370% since IPO). Seeing the strong share price performance some might not read any further, however, it is my view the market is only now working out the potential of the technology, which will be part of the transformation of manufacturing over coming decades. We should note that the company just raised $12m at $1.25 less than a month ago, mostly to institutional investors, who can freely trade the stock, which makes the share price strength even more telling (institutions don't generally sit on their hands when up over 80-100% in a few weeks, not saying they may not have sold a few) sold a few) To bring you up to speed. TTT are opening their new facility which will have the worlds largest and fastest 3D Metal or Additive Manufacturer (AM) printers.
Largest (by a long way) - build size of 40.3 cubic meters (9mx3mx1.5m)
Deposition rate - Fastest deposition rates of up to 45 kg/hr. Can be faster with multiple robotic heads.Additive Manufacturing (AM) will change the way things are produced. Instead of casting, machining and assembling metal components, 3D/AM allows for the metal component to be printed. The reward is lower cost, fewer parts to assemble and no comparative loss of metal characteristics, and in some cases strength and durability increases. The flow on changes in terms of time, supply chain, prototyping new products are revolutionary. And replacing massive capital costs of machining/foundry with "printing in a box" solutions using metal powders. In terms of metal printing, the limitation generally has been that the laser-based 3D printers need to operate in a vacuum, and are limited in print size and deposition rates. TTT's process used cold spray kinetic fusion to deposit the metal onto a scaffold. The metal is never heated to a melting point, thus no need for the vacuum environment to prevent the metal from changing characteristics as heated. As they say, they want to "disrupt" their own cost base and share with others. If you wish to understand what GE thinks, take the time to look at the following The Boss of GE additive talking about his light bulb moment in 3D, big investment numbers talked about (get through the start of the clip to get the important info)
TTT - Share price drivers
General Electric (GE) one of the worlds largest manufacturers has gone all in on 3D/AM.
Why the interest and +++ share price?
Press - As I sent to clients a week or so ago, the launch will have the official part on Wednesday, with a sprinkling of politicians I am told, and press. Thursday will be fund managers. Australians love to embrace technology when they are at the forefront of something or the first, and this is what TTT has. So I would be highly surprised if there is no coverage by the ABC at least, given the CSIRO connection.
Jeff Lang is back in the workshop - Jeff was, until the appointment of the new CEO (Gilbert Michaca), the CEO/CTO from listing. I have met with Jeff perhaps half a dozen times now and he is the one who convinced me about the TTT technology. His background is in composites manufacturing where he has been very successful. And given they now have the facility, and are flooded with inbound enquiry (they signed MOU with Callaway golf last week and Italian shipbuilder Fincantieri Aust today), it is important the best technical people are working on the prototyping and trials under the MOU's. The reality is they could do with a dozen Jeff's, and we will discuss this on Thursday. Importantly this free's up the new CEO to focus on the international investor community and opening doors to new areas of collaboration.
Other collaborations and MOU's - With limited time and machines to begin with they will selectively choose who to collaborate with. Things like aerospace will be very long lead times. Sporting goods, defence, shipping etc shorter, so expect a mixture of announcements. For TTT they can do both, high-value low volume, and low value high volume (remember they print a titanium bike frame in around 20 mins). I own TTT and made it my best pick for 2018 (HERE), so I am talking about a position I hold and believe in. To me, a technology that can transform manufacturing over coming decades is much more exciting than most of the new "tech" I am seeing. And if successful, I think the upside opportunity outweighs a lot of these tech ideas in terms of relative value (listen to this interview to get a better understanding of why I think this (GE's Chairman on Additive Matters). It's rare to find companies as transformative as the TTT tech has the potential to be, and perhaps now this is being reflected in the share price. It is not possible, in my view, to say if the share price offers good or poor value at this point, and would not pretend to know where the share price might be in the near future. And that is not the point of this note. My view, however, is there is meaningful value creation when the company turns out successful prototypes and explains from there what the revenue model/monetisation might look like for each customer (ie MOU's to Contracts). I will look to update investors post the site visit this week with further thoughts.
TTT advantage - size, speed, cost Titomic has co-developed with the CSIRO, and has the exclusive rights to commercialise, a proprietary and patented process, for the application of cold-gas dynamic spraying (cold spray) of titanium or titanium alloy particles onto a scaffold to produce a load-bearing structure. Size
The gantry system being built in its Melbourne factory will have a print output size of (L x W x H) 9 x 3 x 1.5 m = 40.5 m
Speed
Current speed is 45kg/hr using fusion powder feed. They intend to get this to 200kg/hr To put that in perspective with other current technologies
Electron beam melting wire feed - 9.07kg/hr
Direct Energy deposition powder feed - 2.9kg/hr
Direct energy deposition wire feed - 2.27kg/hr
Cost Harder to directly compare, because it depends on the product you are producing. The cost saving on a bike frame vs and wing strut is very different. The previous example I used was a bike frame - "Titanium bike frames. The best titanium frames, made with the high-grade materials and with quality control assurance will cost between A$5,000 and A$16,000. They are welded and if there are any impurities introduced during the development process they can lose the qualities you are paying for. For comparison, using the Titomic process, they can create a titanium bike frame, with no welds, for around A$300 in 20 mins." Using low-grade titanium, and low-cost labour in China, and welding the frames, you might be $100-200 more. Normally larger components are machined from solid titanium billets, and commonly this will result in wasting a large % of the material (80-90%) and is a very lengthy process (takes a number of days - not hours). To me, the value in Titomic, is about its ability to change the way companies approach high end metals manufacturing. From a boat hull to a 1 piece titanium golf club, the process enables the use of a superior metal, which may never have been considered due to cost, and makes it available for countless applications/designs.
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About the manufacturing facility - Located in Victoria
The gantry system being built in its Melbourne factory will have a print output size of (L x W x H) 9 x 3 x 1.5 m = 40.5 m
Building a fully automated manufacturing system the world’s fastest production line for bicycle and wheelchair frames.
The facility will include a ITAR (International Traffic in Arms Regulation) compliance area – a United States regulatory regime to restrict and control the export of defence and military related technologies to safeguard U.S. national security and further U.S. foreign policy objectives.This is a requirement in order for Titomic to work with US based Defence OEMs
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Revenue Model and Russian Market controls TTT’s business model is to demonstrate the ability to manufacture specific components for clients, and then sell the licence and production system (includes the Production Cell and Finishing & Polishing Cell) to the client. TTT also intends to generate revenue through several other streams including: supplying powder consumables, maintenance services, and contract manufacturing. (PAC partners). The big plus is that the TTT process can use low grade titanium powder (shape and size of the particle), and use it in a TTT machine, without loss of properties in the end product. So they have the potential to make a considerable margin on TTT consumables. They can also tell if a customer was to not use a TTT consumable in their machines, which would help control the consumables market. Higher grade titanium is largely controlled and supplied by Russian companies. TTT would significantly reduce dependence on Russian supply of high grade titanium.
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Pending Contracts As mentioned in the previous note, I expect announcements initially around bike manufacturing contracts. Following further meetings with the company, it is possible that the shape of the contracts, could be in the form of the bike companies securing exclusivity, in their relative markets, for a revenue royalty, TTT forecasts first revenue Q3 FY18. The TTT valuation model is very sensitive to contract wins, which result in machine printer sales. Looking at the PAC partners model - "Sensitivity: The main swing factors in our analysis are the Price to Sales multiple and TTT’s FY’19 revenue, which is largely affected by the number of machines sold and sale price of a printer. If the Price to Sales ratio changes by 1x then the impact on valuation is 8¢ per share. If the price of a machine increases or decreases by 1m then the impact on valuation is 10¢ per share. If there is a change in the number of units sold from 1 unit, to either 0 units or 2 units sold then the change in value per share is 76¢." Again, to me, it's not about machine sales alone, it's about changing manufacturing processes using the technology that is the real prize.
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3D Printing is misunderstood - it's about industrial applications, not printing plastic parts at home. Consumers love affair with 3D printing started and ended quickly. However its a true industrial revolution.
Conclusion - don't try and value short-term - watch if they can change manufacturing process Think back to the introduction of carbon fibre as a material, and how it has gone from an extremely high-end manufacturing material, to "relatively" commonplace. Yet it is still roughly 20 times more expensive than steel and 10 times more expensive than aluminium, so cost limits it's widespread use. Carbon Fibre is limited by man hours working with the material. What the Titomic technology aims to do, is take high-end raw materials (titanium, and note they are already working on composites), and make them relatively inexpensive via the manufacturing process. In other word's change how metal parts are made. It is largely automated/robotic. It is extremely hard to value a "change in process" like this. However, in the 3D metal printing/additives space, it is hard to find a company to compare their results with the scale, speed and cost savings of TTT.
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TTT Price at posting:
$2.70 Sentiment: Buy Disclosure: Held
