New Zealand Professional Investment Services Firm

Forsyth Barr

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Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

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Fisher & Paykel Healthcare Corp / Equity Bottom-Up

F&amp;P Healthcare Unmasking Competitor Results&nbsp;—&nbsp;Homecare

NEUTRAL
Insights from ResMed's (RMD) 3Q21 result shows further signs of improvement in the sleep apnea market with a continued sequential lift in patient flow as global economies re-open and recover from COVID-19. This aligns with our F&amp;P Healthcare (FPH) sleep apnea forecasts, which incorporate a recovery in FY22E following lower than usual growth in FY21E. RMD remains the market leader, with signs of market share gain in the key masks segment, albeit the pace of gain has slowed. Focus on FPH's Homecare segment has been dwarfed by stellar performance in the Hospital segment since the onset of COVID-19. We expect this will remain the case near-term as the market looks to better understand the trajectory as COVID-19 tailwinds slow. Nonetheless, Homecare still makes up ~25–30% of group revenue.


Key takeaways from&nbsp;ResMed's&nbsp;3Q21 result and Phillips 1Q21



Quarterly results for sleep apnea competitors weighed by COVID-19:&nbsp;Both RMD and Phillips are beginning to cycle the initial spike in ventilator sales —&nbsp;weighing on headline growth.&nbsp;This will be the case for the coming two quarters. RMD reported 3Q21 constant currency (CC) revenue down -3%, or +1% excluding the COVID-19 uplift in the prior year. Phillips reported a mid single-digit decline in its sleep &amp; respiratory care segment, due to cycling a strong prior comparative for respiratory products.&nbsp;
Steady sequential improvement in patient flow for sleep apnea:&nbsp;Estimated to be back to 70–90% of pre COVID-19 levels globally. New diagnosis rates have improved, and industry participants expect this to continue to accelerate.
Masks:&nbsp;RMD still appears to be taking market share in the key masks segment, with CC growth of +4% in 3Q21.&nbsp;Similar to recent trends we expect this is at the expense of both FPH and Philips, albeit the gains appear&nbsp;to have moderated in recent quarters.&nbsp;
Stable industry pricing environment:&nbsp;US market prices have stabilised since the recent removal of Competitive Bidding. Historically annual price declines have ranged between -2% and -5%.
Product issue&nbsp;for Phillips:&nbsp;The company referenced ozone/cleaning issues for its&nbsp;DreamStation&nbsp;flow generator, with a provision of&nbsp;€250m taken in 1Q21. FPH does not have any material exposure to flow generators, hence, there is limited read through.&nbsp;
Medium-term outlook positive:&nbsp;We expect a return to attractive mid to high single-digit industry growth, with sleep apnea still&nbsp;underdiagnosed&nbsp;globally and helped by a heightened focus on&nbsp;respiratory health. Competitor commentary and industry anecdotes align with this view.&nbsp;RMD's&nbsp;outlook commentary is for a return to double-digit growth later in 2H22, as global markets re-open and patient flow normalises, and helped by a new flow generator due to launch in late CY21 (AirSense&nbsp;11).​​​​​​​



COVID-19 hospitalisations remain a key driver of FPH near-term performance; Hospital&nbsp;competitor commentary due 6 May


COVID-19 data remains mixed and volatile across countries, most notably with the recent outbreak in India and spikes/resurgences in parts of Europe and the US in 2021. The margin of error in near-term forecasting for FPH remains high, albeit we expect Hospital demand has begun to abate in key markets, in line with hospitalisations. We look for any insights from key high flow oxygen therapy competitor, Vapotherm’s 1Q21 result on 6 May (NZ time), particularly recent demand and clinician behaviour beyond COVID-19.



Chelsea Leadbetter
chelsea.leadbetter@forsythbarr.co.nz
+64 4 495 5262





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



F&P Healthcare: Unmasking Competitor Results — Homecare