Company Overview: Micro-X Limited (ASX: MX1) designs, develops and manufactures X-ray products based on carbon nano tube technology. The products find their applications in the global healthcare and security markets, including clinics and military medical facilities.

MX1 Details

Entry to the EMEA Region and US to Drive Growth: The company has witnessed increased traction in demand for its products due to the onset of the COVID-19 pandemic. Being the producer of equipment for diagnostic lung imaging, the onslaught of the pandemic has provided an opportunity to the company for stepping up to the needs of the people and further its market presence.

Revenue Drivers for Long term Growth:

• Product Launch in the Veterinary Market: As per a recent update, the company has announced the launch of a new version of the Rover Mobile DR for usage in veterinary hospitals. The state-of-the-art imaging software has been tailored for small animal exams. There is significant opportunity in the Australian veterinary space, with a market size estimated to be ~$2.6 billion annually.
• Entry to the EMEA Market: The company has announced the unveiling of the Micro-X Rover mobile X-ray unit at the Arab Health 2021 Conference. This is in regard to its strategic entry into the markets of Europe, Africa and Middle East. The Micro- X Rover unit will be displayed to more than 50,000 international healthcare and trade professionals, thereby pitching the advantages of the product in their markets. The product has been showcased by Roesys MedTec GmbH, who has entered into a three-year distributorship agreement with MX1, to distribute the product in the EMEA region.
• FDA Approval Opens Up New Avenue: MX1 has been received FDA approval with respect to its Rover bedside imager, for sales in the US market. It is now making preparations for the commencement of marketing and sales activities of the product in the US and other global markets where the FDA approval holds good. The development marks a significant achievement for the company and will provide access to ~US$170 million annual US healthcare mobile X-ray market.

Revenue Trend (Source: Analysis by Kalkine Group)

A Look at Q3FY21 Performance:

• During the period, the company reported cash receipts of ~$1 million from customers and received $2.1 million for R&D rebates and government assistance.
• It has reported progress in Mobile DR sales, with potential OEM distribution partnerships. The product generated sales of $0.75 million during the quarter.
• The company has maintained a decent balance sheet following the ~$34 million of capital raise, which includes capital from new institutional investors.
• It ended the period with a cash balance of $38.5 million, providing funding comfort into 2023.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Repayment of SAFA Loan: On 30 April 2021, the company has repaid the ~$3 million loans to the South Australian Government Financing Authority (SAFA). The debt facility was fully utilised and attracted an interest rate of 7.75% or ~$0.23 million per annum. Following the repayment, MX1 has no corporate debt on its balance sheet as of 30 April 2021.

Top 10 Shareholders: The top 10 shareholders together form around 42.87% of the total shareholding, while the top 4 constitute the maximum holding. Perennial Value Management Ltd.  and Regal Funds Management Pty. Ltd.  are holding a maximum stake in the company at 11.96% and 10.65%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company reported a gross margin of 39.9% in H1FY21, an increase from 30.2% in H2FY20. The cash cycle stood at 226.1 days during the same period. The total debt stood at $13.83 million as of 31 December 2020, comprising of $10.36 million in long term debt and short term debt of $3.47 million, including lease obligations. 

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risks:

• Financial Risks: The Group’s activities make it prone to several financial risks, which includes interest rate risk, credit risk and liquidity risk.
• Foreign Exchange Risk: The company has operations at a global level, and as such, it is prone to the risks of currency volatility.
• Loss from Operations: Though MX1 has been reporting an uptick in the revenue trend, it has posted a loss during FY20. The management needs to strategise and make a plan for a turnaround towards profitability in the future.
• Regulatory Purview: The company's line of business is subject to prudent regulatory purview in regard to approval of the sale of its products in certain geographies.

Outlook: MX1 has successfully completed a capital raise of ~$34 million in the month of February 2021, which will enable it to fund the expansion of its footprint in the United States. This includes the Airport Self Service Security Checkpoint project and expansion of sales & marketing capabilities to accelerate Mobile DR sales. The company has recently unveiled its new IED X-Ray camera and has already witnessed increased interest from potential customers.

Valuation Methodology: EV/Sales 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: On 05 May 2021, Australian Super Pty Ltd has become an initial substantial holder in the company with a voting power of 5.18%, representing 23,810,480 ordinary shares. As per ASX, the stock of MX1 is trading above its average 52-weeks’ levels of $0.145-$0.450. The stock of MX1 gave a negative return of ~10.81% in the past six months and a positive return of ~1.53% in the past one month. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the loss from operations, prudent regulatory purview and an increase in cash cycle days. For this purpose, we have taken peers such as ImpediMed Ltd (ASX: IPD) Cochlear Ltd (ASX: COH) Resmed Inc (ASX: RMD), to name a few. Considering the expected upside in valuation, launch of product in the veterinary market, FDA approval, capital raise activities, strong cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.33, as on 16 July 2021.

MX1 Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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.

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