DALLAS, TX -- August 7th, 2025--  Electro Optics Systems Holdings Ltd (ASX: EOS): Stonegate Capital Partners updates their coverage on Electro Optics Systems Holdings Ltd (ASX: EOS). In August of 2025 EOS announced that it has secured an order for a 100kW high power laser weapon system (HELW) for counter-drone warfare. This is a A$125.0M contract for a HELW that is to be delivered to a European NATO member, with revenues expected to be recognized over the next 3 years. Of note, this unit can take down 20 drones per minute, which is approximate 5 to 10 times more efficient than current kinetic kill options and does not have the constraint of cool down time. We also note that this contract is expected to be accretive to margins and cash flow positive in the back half. Going forward we expect EOS to secure a further contract for a HELW in 2026. Given the short training window needed to operate these weapons, and significant need for cheaper and effective counter-drone weapons we expect this vertical to become a very significant growth driver as EOS has reason to believe it is poised to capture 50% of the HELW TAM given the proprietary technology and first mover advantage it has. 

Company Updates:

Growth Outlook: The Company has laid out a three-pronged approach for accelerated growth over the medium term that is two parts internal and one part external. EOS expects to focus resources on counter drone RWS technology over the next 1 to 3 years and HELW technology over the next 2 to 5 years. With the above mentioned contract already signed, and another contract not far behind, we believe that this midterm growth potential will quickly come into focus. Aside from these HELW contracts the Company has seen significant order uptake among the other lines of its business. The Company continues to see growing market opportunities with or without a resolution to the war in Ukraine.

Continued Diversification: EOS continues to diversify its product offerings as well as the geographies that it services. We note the strong demand for counter drone products is driven by the current market conditions discussed in further detail below. As the Company continues to grow its RWS offerings we expect the same market conditions to drive demand. EOS recently launched its R500 remote weapon system which is planned to come with AI-based target identification and tracking as well as mesh network capabilities. The Company is currently in the evaluation stage with an existing customer for a launch order of the R500 and has entered into a strategic collaboration to explore joint manufacturing of this system. We are additionally encouraged by management’s commentary around the current production capacity available over numerous geographies, giving enough flexibility to scale with incoming orders.

Strong Backlog: As of the June trading update, the Company has a strong order backlog totaling AUD$170.0M, an increase from AUD$136.0M at year end. The majority of this backlog is expected to be monetized in 2025 and 2026. Most recently we note that the Company generated a positive operating cash flow of AUD$30.5m in 1Q25.

Valuation: We use both a DCF Analysis and Comparable Analysis to inform our valuation of EOS. Our DCF analysis arrives at a valuation range of AUD$4.72 to AUD$5.39 with a midpoint of AUD$5.03. For the Comparable Analysis we arrive at a valuation range of AUD$4.77 to AUD$5.56 with a midpoint of AUD$5.17.

About Stonegate
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