Investment Thesis
- High barriers to entry with unique expertise and assets. 40-year heritage of leadership in science and innovation in ARS and women’s imaging, coupled with the depth of experience from the doctors and clinical team which will continue to underpin MVF’s future growth and maintain treatment success rates.
- Ageing Australian population and increased age of mothers (especially with the trend of more females choosing career over family until their early thirties) will provide favorable demographic tailwinds.
- Improving balance sheet with flexibility to execute expansion strategies. Earnings increasingly become diversified as the Malaysian business gains momentum.
- Potential earnings diversification and growth via international expansion and increased presence in diagnostics.
- Demonstrated capacity to perform well in terms of cost out and earnings growth despite tough conditions (i.e., lower cycle volumes).
- Transparent and detailed disclosures.
Key Risks
- Regulatory risk as changes in government funding may increase patient’s out-ofpocket expenses and thereby volume demand.
- Fluctuations in the availability and size of Medicare rebates may negatively influence the number of IVF cycles administered and overall industry revenue
- The Australian market does not rebound following this period of downturn. Population of males and females with fertility problems decline.
- Loss of key specialists.
- Loss of market share especially to low-cost providers, with one already appearing in Victoria.
- Weakening economic activity resulting in increased unemployment leading to less disposable income to be spent in IVF treatment.
- Execution of international forays into Malaysia goes poorly.
FY21 Result Highlights
- Revenue was up +26.3% to $183.6m underpinned by market share gains and strong industry volumes.
- Adjusted EBITDA was up +37.1% to $47.7m, with margin improving to 26% (from 23.9%) despite a +12% increase in marketing expenditure and patient communication digitisation activities and ~$1.7m of further costs for suspension of Ni-PGT genetic testing program.
- Adjusted NPAT of $23.3m, was up +61.5% and ahead of profit guidance ($21m-$23m). Reported NPAT of $25.5m was up +116.9%.
- MVF Australian FY21 Stimulated Cycles (STIMS) was up +36.6% driven by industry growth of 31.1% and 0.6% market share gains to 21.0%. Management pointed out “in Q1FY21, Monash IVF serviced the pent-up demand/deferred treatment created by the initial COVID-19 related temporary suspension of IVF services. Notwithstanding on-going and sporadic COVID-19 related lockdowns, IVF services have been largely undisrupted and as a result, growth continued throughout the year. Market Share gains were achieved in Victoria, New South Wales, Queensland and Northern Territory whilst the exceptionally high level of market share in South Australia was maintained above 60%. STIM industry growth of 31.1% supported the strong volume growth across the Group bringing the 5-year annual CAGR to 5.6%”.
- International STIMS was up +25.1% or 208 cycles.
- The positive diagnostics ultrasound performance was driven by obstetrics growth and a shift of activity from public to privately owned clinics. Ultrasound scan volumes were up +12.9% to 92,776 and Non-invasive Pre-natal testing were up +17.8% to 15,877.
- MVF appointed five experienced Fertility Specialists and a Medical Director of Genetics.
- MVF is opening its Sydney CBD flagship clinic and has earmarked further new clinics in the pipeline for FY22.
Company Profile
Monash IVF Group Ltd (MVF) offers assisted reproductive technology services, ultrasound services, gynecological services, in-vitro fertilization services, consultancy services and general clinical services to patients in Australia and Malaysia. MVF comprises 40 clinics and ultrasound practices and employs ~100 doctors and has a network of 650 associated health professionals.
(Source: BanyanTree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
Honda’s products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market’s move to light trucks, where Honda’s lineup is not as complete as competitors, may be permanent. Ongoing risks include foreign-exchange volatility, a highly competitive U.S. market, and rising steel prices.
Honda’s brand and reputation for quality drive demand for its vehicles, but its longtime niche in fuel-efficient cars historically positioned the company well to take advantage of consumers seeking more fuel-efficient vehicles. Over 2003-09, the U.S. car/light-truck mix moved to 55%/45% from 46%/54%, but as gas prices fell and light-truck fuel economy improved, cars have lost share to just 24% in 2020. In 2020, cars made up 41% of Honda’s U.S. sales mix.Honda’s car focus gives it an advantage whenever the critical U.S. market has high gas prices, but with cheap oil, but Honda leaves share on the table in segments such as full-size pickups and large SUVs, as it does not have product in these segments.
Despite a strong car and crossover lineup, formidable threats remain, such as rising commodity prices. Honda can mitigate this problem by using more common-size vehicle platforms to reduce costs, but even that is no guarantee.
Honda Is Fighting the Chip Shortage With a Strong Balance Sheet
Honda’s fiscal 2022 second quarter showed more semiconductor shortage problems than rival Toyota. Honda said on its earnings call that the chip shortage impact is worse than it previously thought so it has lowered fiscal 2022 earnings guidance after raising it in August. Operating profit is now guided to JPY 660 billion yen, down from JPY 780 billion, which is the originally guided figure on May 14. Total company revenue, however, is guided to JPY 14.6 trillion, down from JPY 15.45 trillion in August and JPY 15.2 trillion in May.
Second-quarter total company operating income fell by 29.7% to JPY 198.9 billion, with a JPY 114.1 billion unfavorable variance from lost revenue more than offsetting a JPY 36.7 billion favorable foreign exchange contribution and slightly lower overhead costs.
Financial Strength
Honda’s financial position is excellent, as the company has a small debt load. We estimate Honda’s cash and available credit lines at March 31, 2021, to be about JPY 6.7 trillion. This flexibility is important because it gives the company plenty of room to acquire more capital in the debt markets if needed.Excluding the captive finance company, Honda held about JPY 2.6 trillion in cash at the end of September. We calculate a net cash position at Sept. 30, excluding the captive finance arm, of over JPY 1.8 trillion. As of year-end fiscal 2021, the consolidated company has JPY 3.9 trillion of unused credit lines. Its debt/EBITDA ratio excluding the financing arm is generally well below 1 but was 1.3 in fiscal 2012 due to the Japan earthquake and Thai flooding. We do not see Honda having any problems meeting debt maturities, and we expect the company even before financial services results to be free cash flow positive over our forecast period.
Bulls Says
- Honda’s popular vehicles usually allow it to use fewer incentives than the Detroit Three, boosting the firm’s profits and improving the resale value of its vehicles.
- Honda enjoys a reputation for quality, especially in America’s large coastal markets, but management is concerned about quality problems in recent years and Honda has slipped in U.S. J.D. Power quality rankings.
- In 2020, Honda produced about 96% of its vehicles sold in the U.S. in North America. This means Honda is better positioned than Toyota (71%) to withstand the yen when it is very strong against the dollar.
Company Profile
Incorporated in 1948, Honda Motor was originally a motorcycle manufacturer. Today, the firm makes automobiles, motorcycles, and power products such as boat engines, generators, and lawnmowers. Honda sold 19.7 million cars and motorcycles in fiscal 2021 (4.5 million of which were autos), and consolidated sales were JPY 13.2 trillion. Automobiles constitute 65% of revenue and motorcycles 14%, with the rest split between power products and financial services. Honda also makes robots and private jets.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
