Company Overview: Fisher & Paykel Healthcare Corporation Limited (ASX: FPH) is engaged in designing, manufacturing, and marketing products and systems for utilisation in surgery, respiratory care, acute care, and the therapy of disruptive sleep apnea. FHP’s products are sold in more than 120 countries worldwide, depicting a robust international presence. The company was listed on ASX in November 2001.

FPH Details

FPH Rides on Geographical Expansion & Stable Dividend Policy: Looking at the past performance from 2017 to 2021, the company’s top line and bottom line witnessed an upward trend, as depicted in the picture below. The company is taking the necessary steps to bolster its position worldwide, with a continuous expansion in its installed base of hardware in hospitals. The company remains on track to continue accelerating its investment in manufacturing capacity to increase the overall supply of its products.

Past Performance Covering from FY17 – FY21; Analysis by Kalkine Group

Focus on 1HFY22 Key Numbers:

• Top-line and Bottom-Line Details: The operating revenue declined by 1% on pcp to NZ$900 million in 1HFY22. However, revenue was up 2% on pcp basis on a constant currency basis. NPAT decreased by 2% on pcp to NZ$221.8 million during the period.
• Segmental Highlights: Hospitals' operating revenue declined by 2% on pcp to NZ$670.2 million. However, on a constant currency basis, revenue from Hospitals went up slightly by 1% on pcp basis. Hospital consumables witnessed a rise of 8% YoY on a constant currency basis. Notably, 67% of total Hospital product group revenue came from the sale of consumables, and the remaining 33% came from the sale of hardware. In the Homecare product group, revenues went up by 3% year over year on a constant currency basis.
• Impressive Gross Margin: In 1HFY22, the gross margin stood at 63.1%, depicting an expansion of 135 basis points year over year, owing to higher demand during the initial surges of COVID-19.
• Enhancing Shareholder’s Value: The company declared an interim dividend of NZD 0.17 in H1FY22, compared to NZD 0.16 in the pcp, with a payment date of 15 December 2021.
• Liquidity Details: The company exited the period with total cash and investments balance of NZ$288.4 million. Net cash stood at ~NZ$216.1 million at the end of 30 September 2021. The gearing ratio as at 30 September 2021 came in at –16.6%. Cash inflow from operating activities came in at NZ$127.5 million in 1HFY22.

Revenue by Product Group; Analysis by Kalkine Group

Key Metrics: EBITDA margin for 1HFY22 stood at 38%, higher than the year-ago figure of 37.5%. The current ratio stood at 2.76x, up from 1HFY21 current ratio of 1.91x, demonstrating improved short-term financial liquidity.

Leverage Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 22.42% of the total shareholdings, while the top 4 constitutes the maximum holding. Mitsubishi UFJ Financial Group Inc and The Vanguard Group, Inc. are holding a maximum stake in the company at 6.1% and 3.66%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  The company has experienced a high intensity of sales of its products during the COVID-19 peak in FY21. Therefore, it is faced with the risk of sales normalisation once the COVID-19 cases subside. The company also expects a higher volume of air freight and elevated freight costs. Additionally, stiff competition from peers remains a potential concern.

Outlook: Over the next five years, FPH expects to invest ~NZ$700 million in land and buildings, which includes a fifth building completing its Auckland campus and acquiring land for a second New Zealand campus. Further, it anticipates adding three more manufacturing facilities located outside New Zealand, the first of which is presently under construction in Tijuana, Mexico. The company remains well-positioned to meet the ever-growing demand for the ongoing use of its installed base of hardware and thus continues to invest in its infrastructure, ensuring long-term growth opportunities. For FY22, FPH expects to report operating revenue between NZ$1.675 billion to NZ$1.70 billion. The company intends to release its FY22 results on 25 May 2022.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of the company has been corrected by ~20.4% in the past six months. Currently, the stock is trading near its 52-week low level of A$21.68. The stock of the company has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount compared to its peers, considering the risks related to COVID-19, strict regulatory approval, foreign currency risk, increased freight costs, etc. For the purpose of valuation, peers such as Cochlear Ltd (ASX: COH), Nanosonics Ltd (ASX: NAN) and others have been considered. Considering geographical expansion, enhancing shareholder’s value, decent rise in segmental revenues, positive long-term outlook, current trading levels, indicative upside in valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the closing market price of A$22.56, down by ~0.177% as on 6 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

FPH Daily Technical Chart, Data Source: REFINITIV

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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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