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Published to the market and investors on 25^th September 2018 @ 9.39am (London time).

 

Mauna Kea Technologies SA (MKEA-FR): H1 results reflect continued focus on the US
Recommendation: OUTPERFORM
Target Price: EUR4.10
Current Price: EUR2.90 (COB on 24^th September 2018)

KEY TAKEAWAY

Mauna Kea reported H1/2018 financial results broadly in line with our expectations. The net loss of EUR6.8m (18% YoY) was mainly due to a 14% decrease in total revenue associated with the revenue lag under the new consignment business model, and a 4% increase in operating expenses related to strengthening of the commercial infrastructure in the US. We see the strong reported growth in installed base of consignment systems as a key performance indicator and expect revenue on the back of new system placements to be realised from Q3/2018E, enabling the company to meet our recently adjusted FY2018E sales of EUR8.3m. On our view, low utilisation of consignment systems represents the main risk, but we expect the strong commercial infrastructure in the US to form a solid foundation for sustainable future growth. We maintain and reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Results reflect strategic investments to strengthen commercial infrastructure

As previously reported, YoY sales decreased by 18% in H1/2018 mainly driven by a 48% and 87% decline in EMEA and LATAM clinical sales, respectively. Mauna Kea also reported a 4% increase in operating costs due to additional administrative expenses and investments in sales & marketing associated with restructuring of the sales team in the US. These increased investments are reflected by the strong expansion of Cellvizio's installed base in H1/2018, which paves the way for tangible top-line growth in the near future. The company reported a cash position of EUR15.1m and a relatively stable cash burn of EUR5.9m vs. EUR5.7m in the same period last year.

Installed base growth the key performance indicator

As expected, the time lag between system placement, utilisation and revenue generation under the new consignment business model has continued to affect gross margin, which decreased from 68% in H1/2017 to 64% in H1/2018. However, of the total 16 systems placed in the US in H1/2018, 11 were consigned in Q2, indicating accelerating momentum. We expect to continue seeing this trend in H2/2018 as proficiency of the US sales team further improves. With a continuously expanding installed base, the focus increasingly lies on utilisation of consignment systems, which poses the biggest risk to recurring revenue and sustainable future growth, in our view.

Increased focus on clinical and geographic expansion for Cellvizio

Going forward, the company intends to continue to focus on the core clinical business in the US, while at the same time expanding its geographical presence and clinical offering in other key markets such as China. Clinical sales in the APAC region increased 29% in H1/2018, driven primarily by sales of Youhe Medical, Mauna Kea's distribution partner in China. The Asian market offers large room for expansion in both clinical application and regional presence and management highlighted its strong intentions to further penetrate the APAC market in addition to growing its clinical business in the US and exploring commercial avenues in Europe.

We maintain and reiterate our target price of EUR4.10

We maintain and reiterate our target price of EUR4.10 per share, which is based on an EV/Sales multiple approach using our EUR25.1m revenue estimate for 2022E, a multiple of 4.0x, a discount rate of 11% and a probability rate of 75%. We continue to believe that Mauna Kea is well-positioned to enter a period of accelerated growth as the new commercial strategy and strong sales infrastructure start to pay off and revenues from systems consigned in H1/2018 begin to be realised. We maintain and reiterate our OUTPERFORM recommendation.

Kind regards,

Martin Brunninger | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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Managing Directors: Dr Stephan Goetz, Martin Brunninger and Ulrich Kinzel.

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