ResMed Inc.

Company Overview: Headquartered in San Diego, California, the United States, ResMed Inc. (ASX: RMD) is engaged in providing new and advanced solutions to people in their homes. Through its out-of-hospital software platform, RMD facilitates people to stay out of the hospital, thus allowing them to live a high-quality and healthier life. It offers medical devices such as sleep devices, respiratory care devices, masks, etc., which can be connected over the cloud. The company was listed on ASX in November 1999.

RMD Details

 RMD Rides on Acquisition Synergies & Decent Fundamentals: RMD has acquired several companies, in line with its strategy to strengthen its market position as a leading medical device manufacturing company. In October 2021, RMD purchased Ectosense, producer of the NightOwl device applied for home sleep testing. Further, in 2016, RMD acquired Brightree. In July 2018, it bought HEALTHCAREfirst, and in November 2018, it bought MatrixCare. Due to multiple acquisitions, the company’s operations now include out-of-hospital software platforms, thus helping people stay healthy in the home or care setting. With these strategic alliances, RMD is well placed with a robust platform for future growth.

Sneak Peek at 1HFY22’s Key Results:

• Rise in Total Revenues: The company has recently announced its 1HFY22 results, wherein it reported net revenues of ~US$1,798.9 million, depicting a growth of ~16% year over year, attributable to robust demand for its sleep and respiratory care products, and solid growth in its software-as-a-service (SaaS) business. The SaaS revenue also grew by 7% on pcp, owing to growth in the HME category and positive patients flow in its out-of-hospital care settings.
• Decent Growth in Net Income & Gross Profit: The company reported a net income of US$405.4 million, indicating a rise of 13% on pcp on account of strong sales. Diluted earnings per share (EPS) came in at US$2.76 per share with a growth of 13% on pcp, owing to the growth in net income. Gross profit in 1HFY22 stood at US$1,010.6 million, up from US$901.1 million reported in the year-ago period, mainly due to the benefits from product mix changes, and manufacturing and procurement efficiencies.
• Liquidity Position: RMD exited the period with cash and cash equivalents of US$194.5 million. Total debt (short and long-term) at the end of 31 December 2021 was US$679.9 million. Net cash flow from operations in 1HFY22 came in at US$154.2 million. During 2QFY22, the company paid out US$61.2 million as dividends.

2QFY22 Highlights; Analysis by Kalkine Group

Key Metrics: EBITDA margin for 2QFY22 stood at 32.4%, higher than the industry median figure of -14.6%. The cash cycle days stood at 147.3 days in 2QFY22, compared to the industry median of 167 days.

Profitability Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 7.09% of the total shareholdings, while the top 4 constitutes the maximum holding. First Sentier Investors (Hong Kong) Limited and Vanguard Investments Australia Ltd. are holding a maximum stake in the company at 2.64% and 1.21%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  

Key Risks; Analysis by Kalkine Group 

Outlook: The company remains well equipped for future growth, given the increasing demand for sleep and respiratory care devices on the steady improvement of markets from COVID-19 impacts. The continued robust commitment of RMD’s AirSense 10 and AirSense 11 platforms sustain optimism for the company in the near term. RMD enjoys geographical exposure, thanks to its higher investment and expansion in high-growth markets like China, South Korea, Brazil, India, and numerous countries in Eastern Europe. Additionally, investor’s remains confident, owing to the robust adoption of RMD’s AirView for ventilation software solution and its future plans to expand this technology globally.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~10.29% in the past six months. Currently, the stock has a 52-week high and low level of $40.79 and $24.31, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium compared to its peers, considering the rise in top-line, acquisition synergies, geographical diversification, etc. For the purpose of valuation, peers such as Cochlear Ltd (ASX: COH), Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH), and others have been considered. Considering the aforesaid fact, rise in top line, geographical expansion, decent long-term outlook, stronger sales from SaaS based platform, current trading levels, and indicative upside in the valuation, we recommend a “Buy” rating on the stock at the closing market price of $32.78, up by ~0.768% as on 30 March 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

RMD Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.