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 record 9M11 revenue of US$92.7m, representing a 16% YoY increase. Corresponding net profit rose by 71% YoY to US$13.0m if litigation settlement gains and non-cash stock compensation charges were excluded. The good performance was driven by strong market growth in the US and continued demand across other world markets.
Key ratios…
Price-to-earnings: 11.9x
Price-to-NTA: 2.2x
Dividend per share / yield: S$0.01 /3.1%
Net cash/(debt) per share: US$0.053
Net cash as % of market cap: 16.2%
Share price S$0.325
Issued shares (m) 586.612
Market cap (S$m) 190.0
Free float (%) 36
Recent fundraising activities Nil
Financial YE 31 Dec
Major shareholders Robert Gaines-Cooper (27.3); UBS (14.4); Porter Orlin LLC (14.4)
YTD change -1.52%
52-wk price range S$0.270-0.405
Our view
Kulim manufacturing facility to offset price pressures. LMA’s new manufacturing facility in Kulim, Malaysia, is expected to begin operations in 4Q11. Currently planned solely for the production of the LMA SupremeTM, it is expected to reduce production cost for this product by about 30%. This would help mitigate downward pricing pressures and allow overall gross margins to be held steady at about 59-60%.
Three-year sole source supply agreement. LMA recently signed a sole supply agreement for its airway product with Novation LLC, a leading healthcare group purchasing organisation in the US. This enables it to secure 100% of Novation’s airway product orders although it sacrificed a couple of percentage points in margins in order to seal the deal.
Previous acquisitions contributing. In the first half of this year, LMA acquired Wolfe Tory Medical for its atomisation products and Vitaid Limited for its Canadian distribution network. These two acquisitions have started contributing to sales growth in the third quarter. LMA is on the lookout for more synergistic acquisition opportunities with its net cash of US$21.3m.
Stable performance with reasonably cheap valuation. LMA has been delivering stable growth and its current valuation looks reasonably cheap. If 9M11 net profit (excluding litigation gains and stock compensation charges) were annualised, the stock would be trading at FY11F PER of only 7.6x. The company recently bought back 780,000 shares for between $0.31 and $0.34.
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