Mauna Kea Technologies SA (MKEA-FR): H1 results reflect continued focus on the US

Free to access research and investor meetings in a post-MiFID2 world.

This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients.

Published to the market and investors on 25^th September 2018 @ 9.39am (London time).

Mauna Kea Technologies SA (MKEA-FR): H1 results reflect continued focus on the US
Recommendation: OUTPERFORM
Target Price: EUR4.10
Current Price: EUR2.90 (COB on 24^th September 2018)

KEY TAKEAWAY

Mauna Kea reported H1/2018 financial results broadly in line with our expectations. The net loss of EUR6.8m (18% YoY) was mainly due to a 14% decrease in total revenue associated with the revenue lag under the new consignment business model, and a 4% increase in operating expenses related to strengthening of the commercial infrastructure in the US. We see the strong reported growth in installed base of consignment systems as a key performance indicator and expect revenue on the back of new system placements to be realised from Q3/2018E, enabling the company to meet our recently adjusted FY2018E sales of EUR8.3m. On our view, low utilisation of consignment systems represents the main risk, but we expect the strong commercial infrastructure in the US to form a solid foundation for sustainable future growth. We maintain and reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Results reflect strategic investments to strengthen commercial infrastructure

As previously reported, YoY sales decreased by 18% in H1/2018 mainly driven by a 48% and 87% decline in EMEA and LATAM clinical sales, respectively. Mauna Kea also reported a 4% increase in operating costs due to additional administrative expenses and investments in sales & marketing associated with restructuring of the sales team in the US. These increased investments are reflected by the strong expansion of Cellvizio's installed base in H1/2018, which paves the way for tangible top-line growth in the near future. The company reported a cash position of EUR15.1m and a relatively stable cash burn of EUR5.9m vs. EUR5.7m in the same period last year.

Installed base growth the key performance indicator

As expected, the time lag between system placement, utilisation and revenue generation under the new consignment business model has continued to affect gross margin, which decreased from 68% in H1/2017 to 64% in H1/2018. However, of the total 16 systems placed in the US in H1/2018, 11 were consigned in Q2, indicating accelerating momentum. We expect to continue seeing this trend in H2/2018 as proficiency of the US sales team further improves. With a continuously expanding installed base, the focus increasingly lies on utilisation of consignment systems, which poses the biggest risk to recurring revenue and sustainable future growth, in our view.

Increased focus on clinical and geographic expansion for Cellvizio

Going forward, the company intends to continue to focus on the core clinical business in the US, while at the same time expanding its geographical presence and clinical offering in other key markets such as China. Clinical sales in the APAC region increased 29% in H1/2018, driven primarily by sales of Youhe Medical, Mauna Kea's distribution partner in China. The Asian market offers large room for expansion in both clinical application and regional presence and management highlighted its strong intentions to further penetrate the APAC market in addition to growing its clinical business in the US and exploring commercial avenues in Europe.

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 H1/2018 begin to be realised. We maintain and 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

www.goetzpartnerssecurities.com

Registered in England No. 04684144.

Managing Directors: Dr Stephan Goetz, Martin Brunninger and Ulrich Kinzel.

Click here to see our privacy policy.

GPSL has a formal client relationship with Mauna Kea Technologies SA.

GPSL publishes and distributes "Investment" Research and "Corporate Sponsored" Research. Our Corporate Sponsored Research and investor meetings (e.g. NDRs, 1 to 1 meetings) are free to access and attend and is not classified as an inducement in a post-MiFID2 world, this is because the issuer is paying GPSL. GPSL does not offer any execution or market making services. This is a marketing communication as defined by the Financial Conduct Authority ("FCA"). The information herein is considered to be an acceptable minor non-monetary benefit as defined under FCA COBS 2.3A19(5).

In accordance with the General Data Protection Regulation ("GDPR") - if you would like to be removed / unsubscribed from our CRM (also please note that you are free to contact GPSL at any time in the future to have your e-mail subscription amended), please e-mail:
researchproduction@goetzpartners.com

About GPSL: goetzpartners securities Limited is a member of the goetzpartners group, and a leading pan European investment bank and research company. We bring together a wide range of expertise, insights and innovations to advance the interests of our clients around the world. The fast-changing environment brings challenges for businesses and investors. Research innovation, digital transformation and disruptive business ideas reshuffle the corporate world at a relentless pace. Our sector knowledge and our global footprint bring together corporate intelligence and a deep understanding of the industry with a wide network of top decision makers. These collective insights help our clients to stay at the leading edge of change.

This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients.

This e-mail (including any attachments) from goetzpartners securities Limited ("GPSL") is confidential and may contain information which is proprietary, privileged or otherwise legally protected against unauthorised use or disclosure. If you receive this e-mail in error or are not the intended recipient of this e-mail, please delete and destroy all copies in your possession, notify the sender that you have received this e-mail, and note that any review or dissemination of, or the taking of any action in reliance on this e-mail is expressly prohibited. GPSL shall not be liable for the improper or incomplete transmission of the information contained in this e-mail nor for any delay in its receipt or damage to your system. GPSL does not guarantee that the integrity of this e-mail has been maintained nor that this e-mail is free of viruses, interceptions or interference and makes no warranties in relation to these matters. This is not an offer or a solicitation to buy or sell securities or investment products, or an official confirmation. GPSL record electronic and phone communications in accordance with FCA and MiFID2 regulations, they will be monitored for regulatory and training purposes. GPSL is authorised and regulated by the Financial Conduct Authority of the United Kingdom (Firm Reference Number: 225563).

Click on the following link for the GPSL MiFID2 Investor Guidance Notice

GPSL Equity Research publications are available on the following aggregators and via news distribution circuits (For Institutional Use Only): AlphaMetry, AlphaSense, Bloomberg (GOET), Capital IQ, EQS, FACTSET, Research Tree, RNS Reach, Sentieo and Thomson Reuters.

Please copy the below link and paste it into your browser for the full pdf version of the equity research report:

https://gp.bluematrix.com/sellside/EmailDocViewer?encrypt=a8570fe5-ba36-4de7-8dd6-eb0e623ac760&mime=pdf&co=gp&id=paul.dunne@goetzpartners.com&source=libraryView

Free to access research and investor meetings in a post-MiFID2 world.

This research report is intended for use only by persons who qualify as professional investors or eligible counterparties (institutional investors) in the applicable jurisdiction, and not by any private individuals or other persons who qualify as retail clients.