Topic: Yesterday, ASW released mixed half-year results with a better than expected sales growth but profitability is burdened by a less favourable product mix in the miles program. Overall, FY23 looks set to come in somewhat as a transition year.

H1 sales came in at CHF 11.5m, up 56% yoy due to tailwinds from the Subscription segment (CHF 7.5m, + 56% yoy) while the Services segment could also show solid improvements (CHF 4m, +56% yoy

). The leisure and “bleisure” (mix of business and leisure) travel has seen a strong recovery and continues with strong momentum, according to Swiss Newspaper Handelszeitung, providing ASW premium memberships with tailwinds for its subscriptions “Signature” and “Prestige”. The newly added Emirates Skywards program (added Sept. 22) has already outgrown the previous best performer Miles and More, expanding ASW's reach into the middle east.

H1 EBITDA came in worse than expected, down 25% yoy to CHF 1.0 m (eNuW: CHF 1.4

m

), 9% EBITDA margin due to (1) the absence of highly profitable hospitality consulting fees that lifted profitability in H1 22, (2) a less favourable product mix (Emirates Skywards has a lower gross margin than Miles and More), (3) higher marketing expenses and (4) minor one-off costs. For H2, however, we expect a slight normalization of profitability (eNuW: CHF 1.3m, 12.7% EBITDA margin) due to a few promising and highly profitable hospitality consulting fees and a slight improvement in product mix towards Miles and More. The ongoing and scalable monetization expansions at ASW, i.e. the hotel booking engine “AsmallWorld Collection” (+26% yoy hotel bookings) and the partnership program “AsmallWorld Discovery”, still  need to materialize and reach its desired scale, but should nevertheless lead to incremental margin expansions from FY24e onwards, in our view.

While the sales and membership guidance was confirmed, the EBITDA guidance was lowered to CHF 2.2-2.4m (old: CHF 2.6-2.8m) to reflect the higher COGS due to the less favourable product mix. As a result, we lowered our EBITDA estimate to CHF 2.3m (old: CHF 2.7m).

Nevertheless, the stock is attractively valued while the market seems to underestimate the important steps ASW has taken to increase its revenue base and margins. Therefore, we reiterate our BUY recommendation with reduced PT of CHF 6.00 (old: CHF 6.40), based on DCF.