Mauna Kea Technologies SA (MKEA-FR): Progressing toward long-term strategic growth

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Published to the market and investors on 26^th April 2019 @ 8.07am (BST).

Mauna Kea Technologies SA (MKEA-FR): Progressing toward long-term strategic growth
Recommendation: OUTPERFORM
Target Price: EUR4.10
Current Price: EUR1.91 (CoB on 25^th April 2019)

KEY TAKEAWAY

Mauna Kea reported strong Q1/2019 sales of EUR1.7m (65% YoY) with consumables sales of EUR0.9m (96% YoY) representing 51% of total sales, thus highlighting continued progress toward maximising utilisation of Cellvizio, which represents one of three key strategic targets set out by management for 2019. While total sales growth was in part driven by softer sales in Q1/2018, total consumable sales grew 10% vs. Q4/2018, indicating Cellvizio's increasing utilisation, which we continue to consider a key performance indicator for Mauna Kea. Importantly, total Cellvizio shipments increased to 13 in Q1/2019, which represents a 63% increase compared with the same period in 2018. We continue to believe that Mauna Kea's strategic priorities for 2019 will lay a solid foundation for sustainable future growth, hence, we maintain and reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Q1/2019 results reflect clear strategic focus for 2019

In our view, consumables sales remain the most critical growth driver for Mauna Kea in 2019, and Q1 results are a clear indicator for the growing momentum of Cellvizio in the US, suggesting that the focus on maximising utilisation is starting to bear fruit. Q1 results also highlight an increased commercial focus ex. US, with sales in APAC and EMEA/RoW increasing 127% and 33% YoY, respectively. As such, management has made impressive progress on the three strategic priorities it set out for 2019, namely (1) maximising utilisation of existing Cellvizio systems in the US, (2) driving revenue growth outside the US, and (3) evaluating new indications as future growth drivers.

1. Maximising utilisation and consumable growth in the US

We remind investors that low utilisation rates of consignment systems pose the biggest risk to sustainable future growth, but we anticipate strong consumables sales growth in 2019E due to revenue realisation from Cellvizio systems installed throughout 2018 and increasing adoption driven by further clinical validation. Furthermore, Mauna Kea's management has made it a key focus for 2019E to drive utilisation and to further expand installed base, hence we anticipate accelerating consumable sales growth throughout 2019E and beyond.

2. Driving revenue growth outside the US

Total sales by geography for the first quarter were largely driven by revenue growth in APAC (127% YoY), displacing EMEA as the second largest sales contributor following US & Canada. China remains a particular focus for Mauna Kea, and with a very strong distribution relationship with Youhe Medical in place, we anticipate seeing accelerating sales growth from capital and consumables purchases throughout 2019E.

3. Evaluation of the interventional pulmonology market as a new clinical indication

Mauna Kea is continuing to evaluate the large interventional pulmonology market as a potential new clinical indication for Cellvizio, which would add a strong second pillar to the company's current gastrointestinal expertise and unlock significant commercial potential. With a 510(k) clearance in place, the indication is significantly de-risked and a strong candidate for a future growth engine of the company.

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 2018 continue to be realised throughout 2019E.

Kind regards,

Martin Piehlmeier | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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