ResMed Inc.

RMD Details

Latest Updates: ResMed Inc. (ASX: RMD) develops, manufactures, and distributes medical devices and cloud-based software applications to treat respiratory disorders, such as sleep apnea, and other chronic diseases. Recently, RMD notified that ~404.14 million CDIs are listed on ASX at the end of May 2022 versus ~404.74 million CDIs at the end of April 2022 due to net transfers between CDIs and common shares listed on NYSE.

Robust Demand for Products Drives Top-Line Growth in Q3FY22 (Ended 31 March 2022):

• Revenue increased by ~12% Y-o-Y and income from operations rose by ~5% Y-o-Y in Q3FY22 due to robust demand for its sleep and respiratory care devices and improved patient flows in the core sleep apnea market.
• The durable medical equipment category of the SaaS (software-as-a-service) segment also contributed to revenue growth.

Growth in Key Metrics on a YTD basis; (Analysis by Kalkine Group)

Key Risks:  The company face the risk of technological changes, weak demand conditions, COVID-19 disruptions, peer competition, and regulatory bottlenecks.

Outlook: RMD focuses on investing in R&D programs for new medical devices and digital health to expedite its growth strategy. It continues to target improvement in patient outcomes for ~250 million lives in 2025.

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 RMD gave a negative return of ~14.06% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $26.370 - $40.790. The stock 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 a slight discount than its peers’ average P/E multiple, considering compressed gross margin, COVID-19 related supply chain disruptions, and the risk of technological changes. For this purpose of valuation, a few peers like Cochlear Ltd (ASX: COH), Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH), Somnomed Ltd (ASX: SOM) have been considered. Considering the current trading levels, robust demand for respiratory devices, recovery in the core sleep apnea market, growth in SaaS revenue, continuous R&D investments for innovation, an indicative upside in valuation, we give a ‘Buy’ rating on the stock at the closing market price of $28.960, down by ~0.137%, as of 7 June 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.

RMD Daily Technical Chart, Data Source: REFINITIV 

 Healius Limited

HLS Details

Recent Developments: Healius Limited (ASX: HLS) provides imaging and scanning services and pathology services and operates day hospitals.

Key Material Updates; (Analysis by Kalkine Group)

FY2022 YTD Business Update:

• HLS reported revenues across all divisions are gradually trending up though it is yet to reach normal levels, witnessing COVID-19 and adverse flood impact. As per the release of Medicare data for April, the Core pathology division reported ~8.8% Y-o-Y growth for the four months to 30 April 2022, versus ~-1.4% in 1HFY22.
• HLS anticipates demand will match up to long-term trends of rising population, growing ageing population, etc., and experiences a backlog in routine services.

Growth in Reported Results in 1HFY22; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological changes, COVID-19 disruptions, acquisition risk, and higher capex due to growth investments.

Outlook:

• HLS plans to declare the full audited results on 31 August 2022 for FY22.
• HLS reports an unaudited underlying EBIT of ~$473 million for the year-to-date to May 2022, depicting over 100% growth on the unaudited underlying EBIT of ~$234 million for the year-to-date to May 2021. HLS expects difficult trading conditions in 2HFY22 and focusses on growing its core pathology and imaging divisions.

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 HLS gave a negative return of ~9.24% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $3.640 - $5.540. The stock 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 than its peers’ median P/E multiple, considering higher debt-to-equity ratio, operational challenges due to COVID-19 impact, etc. For this purpose of valuation, a few peers like EBOS Group Ltd (ASX: EBO), Estia Health Ltd (ASX: EHE), Regis Healthcare Ltd (ASX: REG) have been considered. Considering the current trading levels, divisional growth in revenue as per trading update, an expected increase in demand in sync with long term macros trends, a higher underlying EBIT guidance on pcp, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $3.730, down by ~1.842%, as of 7 June 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.

HLS Daily Technical Chart, Data Source: REFINITIV 

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.

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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