ResMed Inc.

RMD Details

Decent Results For 3Q FY19: ResMed Inc. (ASX: RMD) is engaged in the business of cloud-connected medical devices for people with sleep apnea, Chronic Obstructive Pulmonary Disease (COPD), and other chronic diseases. The company, in its third quarter results for FY19, declared a quarterly cash dividend of $0.37 per share with record date of May 9, 2019, payable on June 13, 2019.

Financial Performance in 3Q FY19: The company witnessed strong growth in top-line across all the segments of the business. The revenue saw a growth of 12% to $662.2 million and 15% on a constant currency basis (CC). The gross margin came in at 59.2% (rose 100bps), primarily due to higher margin contribution from MatrixCare, benefits from the manufacturing and procurement efficiencies and product mix changes, partially offset by the fall in average selling prices.

Net income at $105.4 million was down 4% mainly due to the impact of recent acquisitions, higher interest and income tax expense in 3Q FY19.


3Q FY19 Financial Highlights (Source: Company Reports)

Sleep and Respiratory Care: Net revenue for the Sleep and Respiratory Care segment in 3Q FY19 increased by 6% to $582.3 million, negatively impacted by foreign exchange by ~$17.1 million. On CC basis, net revenue saw a growth of 9%. Net revenue from the U.S., Canada, and Latin America at $350.0 million recorded a growth of 10% whereas net revenue in combined Europe, Asia and other markets decreased by 1%.

Software as a Service: SaaS business witnessed revenue growth of 101% to $79.9 million, predominantly due to the acquisitions of MatrixCare and HealthcareFirst.

What to Expect: The management suggested that the business is on a trajectory to improve 250 million lives in out-of-hospital healthcare in 2025.

Stock Recommendation: At the current market price of $16.010 per share, the stock is available at price to earnings multiple of 33.510x. Looking at the historical price performance, the stock has gained 15.44% in the last 1-year. The stock is currently trading towards the upper end of its 52-week range.

Considering RMD’s position as a global leader in the development, manufacturing, distribution and marketing of medical devices and cloud-based software applications, decent results posted in the 3Q FY19, and strong fundamentals, we, therefore, maintain our “Hold” recommendation on the stock at current price of $16.010 per share (down 1.538% on 6 May 2019).


RMD Daily Chart (Source: Thomson Reuters)
 

Ramsay Health Care Limited

RHC Details

Management Reaffirms Guidance for FY19: Ramsay Health Care Limited (ASX: RHC) recently announced about the distribution payment of AUD 2.29310 with dividend distribution rate of 4.6242 % per annum for RHCPA - TRANS PREF 6-BBSW+ 4.85% PERP SUB RED T-10-10 and it will be paid on October 21, 2019 with the record date of October 3, 2019 and ex-date of October 2, 2019.

Financial Performance in 1H Y19: The group revenue at $5.1 billion in 1H FY19 saw a strong pcp growth of 14.9% (and 6.1% excluding Capio Revenue).  RHC recorded core NPAT of $290.8 million in 1H FY19, a 1.0% increase on pcp. Group EBITDA was up 9.8% to $728.6 million (ex Capio EBITDA up 7.2%) in 1H FY19.

The Australian operations delivered a growth of 5.7% in overall EBITDA on the back of volume growth and operational efficiencies. In the UK, Q1 was challenging and it impacted overall earnings for the first half but there were good signs of recovery with respect to NHS volume growth in Q2 and the management is optimistic, and they expect that it would continue into H2 FY 2019.


Group Performance in 1H FY19 (Source: Company Reports)

What To Expect: The management reaffirms FY19 Core EPS growth (including Capio) of up to 2% provided there is no unforeseen circumstances.

Stock Recommendation: The stock is currently available at the price to earnings of 32.370x. Annual dividend yield for the stock stands at 2.28% and market cap at ~$12.99 billion. The stock has gained a 11.56% in the short-term horizon of 3-months. The stock is trading slightly towards the higher end of its 52-week range, in-line with its peer such as Sonic Healthcare Limited (ASX: SHL) and ResMed Inc. (ASX: RMD).

Expected realisation of synergies from Capio acquisition, strategy development to become a global health care operator, scale, diversity and quality of the portfolio across geographies along with strong financials leads us to remain with “Hold” recommendation on the stock at the current market price of $64.020 per share (down 0.836% on 6 May, 2019).    


RHC Daily Chart (Source: Thomson Reuters)
 

Fisher & Paykel Healthcare Corporation Limited

FPH Details

Introduction Of An Innovative New Mask: Fisher & Paykel Healthcare Corporation Limited (ASX: FPH) is a leading designer, manufacturer and marketer of the products used in respiratory care, acute care, surgery and the treatment of obstructive sleep apnea with geographical presence in more than 120 countries. The company recently announced the introduction of an innovative new mask for OSA (obstructive sleep apnea), F&P Vitera^TM. The company would be releasing its financial results for FY19 on Monday, 27 May 2019. FPH under the Fisher & Paykel Healthcare 2003 Share Option Plan issued ordinary shares of 1000 at the issue price of NZD$4.88 which, as a % of the total class of Financial Products issued, is 0.00017%.

Financial Performance in 1H FY19: Net profit after tax for 1H FY19 was up 20% at NZ$97.4 million with operating revenue at NZ$511.3 million, which was 12% above the first half last year and 8% growth in CC.

As a revenue break-up, the Hospital product group delivered revenue growth of 11% in CC, largely due to the continued adoption of Optiflow nasal high flow therapy system. Homecare product group witnessed a revenue growth of 6% in CC mainly driven by sales of recently released SleepStyle CPAP device and continued the strong growth of myAirvo product and related consumables. CC gross margin increased by 22 basis points to 66.0%, with a continued benefit from product mix and Mexico manufacturing facility.


Results in Brief (Source: Company Reports)

What to Expect: Themanagement expects capex for FY19 to be in the range of ~NZ$160 million to NZ$170 million. The operating revenue is expected at around NZ$1.05 billion and NPAT is expected to be in the ambit of approximately NZ$205 million to NZ$210 million (at currency exchange rates of NZD: USD 0.67, NZD: EUR 0.60).

Stock Recommendation: The stock of FPH is currently trading at price to book multiple of 11.60x, higher as compared to 7.4x of its industry average (Healthcare Equipment & Supplies). Theannual dividend yield for the stock stands at 1.4% with market capitalization at ~$8.46 billion at the price of $14.560.

With the earlier update of the management regarding no material impact of the settlement of the global patent infringement litigation with ResMed on its NPAT guidance for FY19, we would like to see the practical aspect of it in the FY19 full-year results to be announced on 27 May 2019.

Overall quality of earnings, guidance for FY20, etc. will also be key factors to watch out to assess the prospects of the business.Hence, we have a wait and watch stance on the stock at the current market price of $14.560 (down 3.191% on 06 May 2019).


FPH Daily Chart (Source: Thomson Reuters) 

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