Mauna Kea Technologies SA (MKEA-FR): Q3 sales indicate growing momentum:

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Published to the market and investors on 22^nd October 2018 @ 3.49pm (London time).

Mauna Kea Technologies SA (MKEA-FR): Q3 sales indicate growing momentum
Recommendation: OUTPERFORM
Target Price: EUR4.10
Current Price: EUR2.70 (COB on 19^th October 2018)

KEY TAKEAWAY

Mauna Kea reported Q3/2018 financial results in line with our expectations. Total sales of EUR1.9m (4% YoY) were largely due to EUR0.8m consumable sales (31% YoY), of which EUR0.3m were associated with the new pay-per-use program (81% YoY). The reported 10% decrease in revenue from systems is associated with the revenue lag under the new consignment business model, which remains a key focus for Mauna Kea. We see the continued growth in installed base of consignment systems as a key performance indicator and expect recurring revenue from these new system placements to increasingly be realised in Q4/2018E, enabling the company to meet our FY2018E sales of EUR8.3m. Low utilisation of consignment systems represents the main risk, in our view, but we expect recent investments into the commercial infrastructure in the US to pave the way for sustainable future growth. We maintain and reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Q3 results reflect strong momentum in the US

The Q3 results highlighted the continued momentum in the US, indicating that investments into the commercial infrastructure are starting to pay off. In Q3, 20 new consignment systems were placed (400% YoY), compared with 5 new systems in Q1 and 11 systems in Q2 of this year, bringing the total number of consignment systems placed to 49. As discussed in our previous note (Sept 2018), we consider installed base growth as a key performance indicator, and the large number of new systems installed this quarter reflects positive momentum that we believe will continue in Q4 and carry over into 2019E. 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.

Positive news flow to drive Cellvizio utilisation

The continuous positive news flow and increasing body of clinical evidence associated with Cellvizio underline the system's significant added value to the medical community. Most recently, Mauna Kea announced the first published report of live "Tele-Cellvizio" utilisation in vivo. The live audiovisual transmission between the surgeon and the pathologist allows for real-time interpretation of optical biopsies, thus improving surgical outcomes. This places Mauna Kea at the forefront of innovation in the application of robotics and AI to improve postoperative results and highlights Cellvizio's compatibility and with novel surgical platforms.

Robert L. Gershon new CEO

Earlier this month, Mauna Kea announced the appointment of Robert L. Gershon as CEO, effective 22nd October 2018. Robert brings over 30 years of experience in directing commercial strategies and marketing execution and was most recently CEO of Bovie Medical Corporation - an American medical device manufacturer focused on electrosurgery equipment. Other previous positions include leadership positions with Henry Schein and Covidien. Sasha Loiseau, founder and current CEO of Mauna Kea, will become Chairman of the Board of Directors.

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 throughout 2018 continue to be realised. We maintain and reiterate both our OUTPERFORM recommendation and EUR4.10 target price.

Kind regards,

Martin Brunninger | Analyst

goetzpartners Healthcare Research Team | Research Team

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