Micro-X Limited

MX1 Details

AGM Presentation Highlights: Micro-X Limited (ASX: MX1) is a hi-tech developer of a range of new X-ray products for security and health markets, using its proprietary cold cathode, carbon nanotube (CNT) emitter technology. The company presented the following highlights during the AGM held on 19 November 2021:

• MX1 has a total addressable market of over ~$30 billion across its four (4) business units of mobile Digital Radiology (DR) products, brain CT scanning, CX-ray cameras & airport checkpoints.
• The company expanded its sales channels, new distribution arrangements, and product range in Q1FY22 to accelerate the commercialisation activities for Mobile DR products. It expects these activities to increase traction and market awareness in the coming months.
• The sales team introduced an X-ray camera named ‘Argus’ in Q1FY22 (ended 30 September 2021) to build awareness and sales pipeline. It has an addressable market of ~$1.8 billion to cater to the Police, military, border forces. The sales team is engaging with customers at the defence expositions and industry conferences to build traction in the US, the UK, & Australia.
• MX1 implemented ~$8.0 million project contract with the Australian Stroke Alliance (ASA) to develop CT imaging technology in Q1FY22. It received an initial milestone payment of ~$0.5 million as per the contract.

Total Debt & Liquidity; (Analysis by Kalkine Group)

Key Risks: The company faces the regulatory delays, technological updates, COVID-19 uncertainty, the risk of monetisation and the launch of new products. 

Outlook:

• MX1 is advancing on the implementation of the commercialisation activities across its product lines to achieve the contracted development milestones.
• The company plans to launch the next gen of Rover products in December 2021 at the largest global radiology tradeshow of the RSNA (Radiological Society of North America). It is well on track regarding the customer demos plans as of now and plans to start pre-production activities during mid-2022.
• MX1 expects to optimise the potential of each product line by setting up of a new commercial business unit with clear P&L responsibility for all business units.
• The multiple development funding contracts (up to ~$13.0 million) entered will help fast-track milestone activities across its airport security and brain CT scanner projects.

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: The stock of MX1 gave a negative return of ~13.11% in the past three months and a negative return of ~23.18% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.225 - $0.450. The stock has been valued using the Enterprise Value to Sales 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 EV/Sales multiple, considering the risk of launch of new products, achievement of development milestones targeted, and the negative net margins from FY15-FY21. For this purpose of valuation, few peers like Atomo Diagnostics Limited (ASX: AT1), Resmed Inc (ASX: RMD), Universal Biosensors Inc (ASX: UBI), and others have been considered. Considering the low trading levels, progress on commercialisation activities across product lines, development funding contracts signed in Q1FY22, the launch plans for the next-gen Rover products, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.255, as of 4 January 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.

MX1 Daily Technical Chart, Data Source: REFINITIV

Medlab Clinical Limited

MDC Details

Key Investment Highlights from the Presentation: Medlab Clinical Limited (ASX: MDC) is a biotech firm engaged in developing novel drugs via its medicine delivery platform NanoCelle®. NanaBis™ (for the treatment of cancer bone pain) and NanoCBD™ (Cannabinoids for stress & depression) are the lead candidates for commercialisation. MDC reported the following investment takeaways from the Jefferies Healthcare Conference held in the UK on 16 November 2021:

• The company experienced strong business momentum in 2021 with the grant of the US patent for its NanoCelle® delivery platform and Orotate, a drug substance/ NRGBiotic™ for the treatment of depression. MDC has now sought patent protection for the NanoCelle® and Orotate in Oceania, Asia, the US, and European jurisdictions.
• It sold off its Australian nutraceutical business to PharmaCare for ~$2.2 million cash in November 2021 in a strategic move to save ~$2 million of operating expenses every year and focus on commercialisation opportunities.
• During Q1FY22 (ended 30 September 2021), MDC received grant approval under an R&D tax incentive program for the development of the NanaBis™ program (including the upcoming global Phase 3 trials). It expects to incur ~$26.98 million expenditure for the program and believes in considerable extension in its cash runway.

The Trend of Liquidity & Total Debt; (Analysis by Kalkine Group)

Key Risks: MDC faces the forex risk originating from certain transactions undertaken in foreign currency. It faces the risk of IP development, regulatory delays, expansion of sites for trials, and the commercialisation of assets. 

Outlook:

• The US patent grant for NanoCelle® signals the go-ahead to pursue partnering opportunities for investment and commercialisation.
• MDC owns the R&D/ IP rights for the nutraceutical business. It will jointly work with PharmaCare on future product development to seek an ongoing income stream. MDC also retains the nutraceuticals rights for the ROW (rest of the world) and is actively seeking opportunities.
• MDC continues to prioritise commercialising its global biotech assets in the US & Europe, expanding regulatory approvals, seek partnering and early market access avenues.

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: The stock of MDC gave a negative return of ~6.666% in the past three months and a negative return of ~12.49% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.140 - $0.420. The stock has been valued using the Enterprise Value to Sales 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 EV/Sales multiple, considering the continuing net losses, negative operating cash flows, and the ongoing risk of commercialisation of assets, and COVID-19. For this purpose of valuation, few peers like AVITA Medical Inc (ASX: AVH), CSL Limited (ASX: CSL), Aroa Biosurgery Limited (ASX: ARX), and others have been considered. Considering the low trading levels, the expected cost efficiencies, reduction in total debt, the grant of the US patent, the R&D grant for the NannaBis™ trials globally, indicative upside in valuation, exploration of partnering opportunities, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.140, down by ~6.667% as of 4 January 2022.

MDC 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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