New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

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).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Fisher & Paykel Healthcare Corp / Equity Bottom-Up

<h2>F&amp;P Healthcare</h2>
Unmasking ResMed’s 1Q20 Result
ResMed’s (RMD) 1Q20 result saw a standout quarter for masks with further evidence of market share gains, likely at the expense of F&amp;P Healthcare (FPH). The key question from here — is one new mask from FPH enough to change this dynamic and support a re-acceleration in Homecare growth, as incorporated in our forecasts. We view this as an area of downside risk, given a highly competitive market rife with new products, and an incumbent (RMD) with strong momentum and products that are resonating well in market.
Key take-outs
<ul>
<li>RMD 1Q20: Standout quarter for masks, with an acceleration in growth, supporting gross margin expansion.</li>
<li>New products: Homecare dealers are spoilt for choice with a highly competitive landscape — the past 12 months has seen four new masks from RMD, one from Phillips and one from FPH.</li>
<li>Competitive bidding (CB): Industry anecdotes suggest downside risk to mask prices from CB 2021. Circa 5% of FPH revenue is exposed to CB.</li>
</ul>
RMD 1Q20 — strong quarter; new products supporting mask growth
RMD reported a 1Q20 result ahead of consensus, with the key highlight being a standout quarter for masks. Market share gains were evident globally for RMD in masks with +19% constant currency (CC) growth. An array of new products has tipped the scales in its favour, with clear positive momentum in recent quarters. Devices saw +6% CC growth, broadly in line with industry growth.
Rounding out a strong result — gross margins were up +120bp (+70bp organic, topped up by acquisitions) helped by strength in the high margin mask category.
Our read through for FPH
<ul>
<li>Industry insights: Competitor commentary supports an attractive industry backdrop (growth of c. +6–8%), with sleep apnea underdiagnosed globally.</li>
<li>Masks: Our FPH forecasts are for market share losses in FY20. Recent results from competitors provide nothing to change this view. We assume new products are successful in changing this trajectory from FY21; albeit this is reliant on a favourable industry response in what is currently a competitive landscape of well-regarded products. One new mask has been launched and we expect to see at least one more in the next 6 months.</li>
<li>Flow generators: RMD and Phillips remain the dominant players in this segment. We see nothing to change this view; particularly given FPH’s strategy is to focus almost entirely on masks.</li>
</ul>
Figure 1. FPH and RMD metrics
<table class="table table-striped">
<thead>
<tr>
<td style="width: 27pt;">
&nbsp;
</td>
<td style="width: 63pt;">
&nbsp;
</td>
<td style="width: 36pt;">
Market
</td>
<td style="width: 36pt;"></td>
<td style="width: 36pt;">
12-mth
</td>
<td colspan="2" style="width: 76.5pt;">
12 month forward
</td>
<td style="width: 27.1pt;"></td>
</tr>
<tr>
<td style="width: 27pt;">
&nbsp;
</td>
<td style="width: 63pt;">
Rating
</td>
<td style="width: 36pt;">
Cap (bn)
</td>
<td style="width: 36pt;">
Price
</td>
<td style="width: 36pt;">
Chg
</td>
<td style="width: 31.5pt;">
PE
</td>
<td style="width: 45pt;">
EV/EBITDA
</td>
<td style="width: 27.1pt;">
PEG
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 27pt;">
FPH
</td>
<td style="width: 63pt;">
UNDERPERFORM
</td>
<td style="width: 36pt;">
NZ$10.9
</td>
<td style="width: 36pt;">
NZ$18.93
</td>
<td style="width: 36pt;">
42.5%
</td>
<td style="width: 31.5pt;">
40.3x
</td>
<td style="width: 45pt;">
25.6x
</td>
<td style="width: 27.1pt;">
2.9x
</td>
</tr>
<tr>
<td style="width: 27pt;">
RMD
</td>
<td style="width: 63pt;">
n/a
</td>
<td style="width: 36pt;">
A$29.7
</td>
<td style="width: 36pt;">
A$20.65
</td>
<td style="width: 36pt;">
50.3%
</td>
<td style="width: 31.5pt;">
31.6x
</td>
<td style="width: 45pt;">
21.7x
</td>
<td style="width: 27.1pt;">
2.5x
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, Eikon
<div class="content-highlight">
Investment View
FPH is a high quality company with an attractive outlook supported by a long runway of organic growth opportunities, particularly in the Hospital segment where clinical evidence continues to build. However, valuation metrics are elevated even when adjusting for growth, relative to global peers, which leaves little room for error. UNDERPERFORM.
</div>
<a target="_blank"></a><a target="_blank">Chelsea Leadbetter, CFA</a>
<a target="_blank">chelsea.leadbetter@forsythbarr.co.nz</a>
<a target="_blank">+64 4 495 5262</a>

F&amp;P Healthcare
Unmasking ResMed’s 1Q20 Result
ResMed’s (RMD) 1Q20 result saw a standout quarter for masks with further evidence of market share gains, likely at the expense of F&amp;P Healthcare (FPH). The key question from here — is one new mask from FPH enough to change this dynamic and support a re-acceleration in Homecare growth, as incorporated in our forecasts. We view this as an area of downside risk, given a highly competitive market rife with new products, and an incumbent (RMD) with strong momentum and products that are resonating well in market.
Key take-outs

RMD 1Q20: Standout quarter for masks, with an acceleration in growth, supporting gross margin expansion.
New products: Homecare dealers are spoilt for choice with a highly competitive landscape — the past 12 months has seen four new masks from RMD, one from Phillips and one from FPH.
Competitive bidding (CB): Industry anecdotes suggest downside risk to mask prices from CB 2021. Circa 5% of FPH revenue is exposed to CB.

RMD 1Q20 — strong quarter; new products supporting mask growth
RMD reported a 1Q20 result ahead of consensus, with the key highlight being a standout quarter for masks. Market share gains were evident globally for RMD in masks with +19% constant currency (CC) growth. An array of new products has tipped the scales in its favour, with clear positive momentum in recent quarters. Devices saw +6% CC growth, broadly in line with industry growth.
Rounding out a strong result — gross margins were up +120bp (+70bp organic, topped up by acquisitions) helped by strength in the high margin mask category.
Our read through for FPH

Industry insights: Competitor commentary supports an attractive industry backdrop (growth of c. +6–8%), with sleep apnea underdiagnosed globally.
Masks: Our FPH forecasts are for market share losses in FY20. Recent results from competitors provide nothing to change this view. We assume new products are successful in changing this trajectory from FY21; albeit this is reliant on a favourable industry response in what is currently a competitive landscape of well-regarded products. One new mask has been launched and we expect to see at least one more in the next 6 months.
Flow generators: RMD and Phillips remain the dominant players in this segment. We see nothing to change this view; particularly given FPH’s strategy is to focus almost entirely on masks.

Figure 1. FPH and RMD metrics




&nbsp;


&nbsp;


Market



12-mth


12 month forward





&nbsp;


Rating


Cap (bn)


Price


Chg


PE


EV/EBITDA


PEG






FPH


UNDERPERFORM


NZ$10.9


NZ$18.93


42.5%


40.3x


25.6x


2.9x




RMD


n/a


A$29.7


A$20.65


50.3%


31.6x


21.7x


2.5x




Source: Forsyth Barr analysis, Eikon

Investment View
FPH is a high quality company with an attractive outlook supported by a long runway of organic growth opportunities, particularly in the Hospital segment where clinical evidence continues to build. However, valuation metrics are elevated even when adjusting for growth, relative to global peers, which leaves little room for error. UNDERPERFORM.

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

F&P Healthcare: Unmasking ResMed’s 1Q20 Result