Mauna Kea Technologies SA (MKEA-FR): Q4 performance generating momentum for 2019

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Published to the market and investors on 18^th January 2019 @ 9.58am (GMT).

Mauna Kea Technologies SA (MKEA-FR): Q4 performance generating momentum for 2019
Recommendation: OUTPERFORM
Target Price: EUR4.10
Current Price: EUR2.28 (CoB on 17^th January 2019)

KEY TAKEAWAY

Mauna Kea reported Q4/2018 financial results slightly below our expectations, however, with sales of EUR2.1m (37% YoY), Q4 represents the strongest quarter for Mauna Kea in 2018, thus highlighting the increasing traction for Cellvizio and validating the transition to the new pay-per-use ("PPY") model in the US. Total sales were largely driven by consumables sales of EUR0.8m, of which EUR0.3m were associated with PPY (112% YoY). As we expected, FY2018 revenues from Cellvizio straight sales declined (-13% YoY) as a result of the move to the new sales model, but this decline was offset by an increase in consumables sales and services, bringing FY2018 sales to EUR6.8m (1% YoY), slightly short of our FY2018E estimate of EUR8.3m. We remind investors that low utilisation of PPY systems still represents a main risk, in our view, but we continue to believe that the new PPY model will translate into sustainable future growth. We maintain and reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Strong Q4 performance expected to carry forward into 2019E

Q4 results highlighted the growing momentum of Cellvizio in the US, suggesting that investments into the commercial infrastructure made throughout 2018 are starting to pay off. In Q4, 19 new consignment systems were placed, compared with 20 new systems in Q3, 11 systems in Q2 and 5 systems in Q1, bringing the total number of new consignment systems placed in 2018 to 55. As discussed previously, we consider installed base growth a key performance indicator and the large number of new systems installed in 2018 reflects positive momentum for the PPY model that we believe will carry over into 2019E and pave the way for an increasing stream of recurring revenue in the future. We believe 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.

Consumables sales in 2018 offset revenue lag associated with PPY model

The fact that Mauna Kea was able to achieve 1% overall revenue growth in FY2018 despite a 13% reduction in straight sales shows that the company can achieve solid sales with PPY, while removing the barrier to adoption of large upfront costs, thereby maximising Cellvizio's penetration and installed base. The reduction in system straight sales was offset by 17% and 6% increases in consumables sales and services, respectively. The strong consumables sales are testament to the increasing utilisation of Cellvizio. In fact, consumable reorders and PPY probe orders represented 90% of total consumable probe shipments in FY2018, compared with 81% in 2017. With an extended installed base and increasing utilisation, Mauna Kea is well-positioned to capitalise on opportunities that emerge from combined use with complimentary technologies that we believe will increasingly develop as the company adds to its already extensive regulatory portfolio.

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. We maintain and reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Kind regards,

Martin Piehlmeier | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

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