Background: LMA International is a market leader in supraglottic airway management devices that are used to support the airways of patients undergoing surgical procedures. The company sells its LMATM laryngeal mask airway devices in more than 100 countries and has offices in North America, Australia, Germany, Italy, Singapore and Canada, as well as an international distribution network.
Recent development: LMA reported 1H11 sales and profit figures which were the highest in its history. Net profit of U$13.6m for 1H11 already exceeded the US$11.4m it made for the whole of FY10, although this was boosted by some one-off items such as litigation settlement of US$4.5m and tax credit of US$2.3m.
Our view
Strong sales of LMA SupremeTM. The strong results were underpinned by an impressive 38% YoY growth in sales of its flagship product, LMA SupremeTM. Overall sales and margins have been rather resilient for LMA with gross margins in the 60% range. Its new low-cost manufacturing plant in Malaysia provides a respite in margin pressure in the immediate term.
Seeking growth in emerging markets. With an estimated 80% market share in the US, LMA needs to look to emerging markets for growth as the US market becomes saturated. India, China and Latin America have demonstrated great growth potential.
On an acquisition trail. In January this year, LMA acquired Wolfe Tory Medical Inc., which is in the business of atomised drug delivery. In April, it acquired Vitaid, its long-term Canadian distributor of its airway devices. Total cash paid for these acquisitions amounted to about US$16m. LMA is not pausing on its acquisition trail as it has said it would continue to make strategic acquisitions in the sector. It still has US$21.9m of cash with zero debt.
Undemanding valuation. At FY10 PER of 12.3x, we think the stock’s valuation is undemanding considering that it is a healthcare-related stock. If 1H11 earnings are stripped of one-off items and annualised, FY11 PER would only be about 8-9x.
Key ratios…
Price-to-earnings: 12.3x
Price-to-NTA: 2.3x
Dividend per share / yield: S$0.01 / 3.2%
Net cash/(debt) per share: US$0.041
Net cash as % of market cap: 16.1%
Share price S$0.315
Issued shares (m) 586.394
Market cap (S$m) 184.71
Free float (%) 35%
Recent fundraising activities Nil
Financial YE 31 Dec
Major shareholders Robert Gaines-Cooper (27.2); UBS (14.2); Porter Orlin LLC (14.2)
YTD change -4.55%
52-wk price range S$0.270-0.405
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