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Mauna Kea Technologies SA (MKEA-FR): Q2 reveals consignment model is gaining traction
Recommendation: OUTPERFORM
Target Price: EUR4.10
Current Price: EUR2.80 (COB on 2^nd August 2018)

KEY TAKEAWAY

Mauna Kea reported H1/2018 sales of EUR2.7m (-18% YoY) slightly below our expectations, mainly due to delays in revenue recognition from new Cellvizio systems installed under the new consignment business model in the US and a 40% decline in sales in EMEA as a result of increased focus on the core clinical business in the US. Importantly, the company reported strong installed base growth, with the number of new consignment systems installed in H1/2018 (16) already exceeding the number of systems installed in FY2017 (13). As a result, we are revising our sales forecasts for FY2018E and FY2019E. Our estimates for out-year remain broadly unchanged as we continue to believe that Mauna Kea is well-positioned to enter a period of accelerated growth, driven largely by its new pay-per-use business model and continuous improvements in reimbursement for procedures involving Cellvizio. We reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Q2 results reflect increasing momentum in consignment sales

Sales of EUR1.67m in Q2/2018 were in line with sales of EUR1.69m in Q2/2017 (-1% YoY), but 60% above Q1/2018 sales, suggesting that the company may have reached a turning point as the new consignment model in the US is gaining traction and sales efforts are starting to yield results. This is also reflected in the 4.5-fold increase in new consignment systems placed in Q2/2018 vs. Q2/2017. Consumables sales in Q2/2018 were up 33% vs. Q2/2017, mainly driven by a 60% increase in the US.

Adjusting 2018E - 2019E sales, 2020E and beyond broadly unchanged

In light of reported Q2 sales, we are lowering our FY2018E sales estimate from EUR9.4m to EUR8.3m and FY2019 from EUR11.7m to EUR11.1m to account for delays in the monetisation associated with the consignment business model, as well as to reflect the increased emphasis on the US and Chinese markets compared with EMEA. Due to the lag associated with the new business model, we anticipate revenues on the back of the growth in the Cellvizio installed base in H1/2018 to be realised in H2/2018, and the strong sales efforts and new commercial strategy to start to pay off. This assumes H2/2018E sales of EUR5.6m.

Target price of EUR4.10 suggests 43% upside to current levels

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%. Our positive stance on Mauna Kea is based on (1) continued improvement in reimbursement structures, (2) growing momentum for sales in key target markets such as the US and APAC, and (3) an expansion of the list of applicable medical specialities. Furthermore, the abundance of complementary technology in targeted therapeutic areas offers upside potential through strategic partnerships. We reiterate our OUTPERFORM recommendation.

Kind regards,

Martin Brunninger | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK.

T +44 (0) 203 859 7725 | martin.brunninger@goetzpartners.com / healthcareresearch@goetzpartners.com

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