Narrow-moat Fisher & Paykel’s FPH first-half fiscal 2025 revenue grew strongly, up 17% to NZD 951 million, while net profit after tax rose 51% to NZD 153 million, both largely tracking our expectations. Management reiterated fiscal 2025 revenue guidance of NZD 1.9 billion-NZD 2.0 billion and fiscal 2025 NPAT guidance of NZD 320 million-NZD 370 million, versus our respective little-changed forecasts of NZD 1.95 billion and NZD 335 million. The guidance implies a typically stronger second half reflective of the US flu season. We maintain our NZD 25 per share fair value estimate, or AUD 23 at current exchange rates.

Shares appear overvalued. Fisher’s opportunity lies in increasing the utilization of nasal high-flow therapy for broader respiratory applications. While it greatly expanded the hardware base due to covid demand, we contend that changing clinical practices remains a gradual and difficult process. Our midcycle group revenue growth and EBIT margin forecasts of 12% and 30%, respectively, are unchanged and consistent with Fisher’s long-term targets. Longer-term, we expect scale efficiencies and an increasing contribution from higher-margin consumables to drive midcycle EPS growth of 16%.

We slightly increase our fiscal 2025 revenue forecast by 1% to NZD 1.95 billion, largely due to stronger homecare mask sales than we expected. Homecare mask sales grew 16%, or 5% sequentially on second-half fiscal 2024, to NZD 316 million. This reflects the continued strong demand for the Evora full face mask launched in May 2022, as well as two new masks launched in the half. However, management indicates that first-half revenue in the hospitals division was likely buoyed by abnormally elevated US seasonal hospitalizations in the second half of fiscal 2024 persisting into the first half, and unlikely to repeat in the second half of fiscal 2025.

Business strategy and outlook

Fisher & Paykel is well-positioned to benefit from long-term growth prospects in hospital and home respiratory care. Increasing adoption of nasal high flow, or NHF, therapy in the hospital division is priority, followed by targeting treatment of COPD in the homecare segment, and longer term, surgical technologies. What management terms “new applications” consists of non-invasive ventilation, NHF therapy, and surgical humidification. Of these, we see the NHF devices and consumables, which are marketed under the Airvo/Optiflow label, as having the most potential reach. The benefits of NHF therapy delivered via nasal prongs include better clinical outcomes leading to a shorter length of hospital stay and lower overall treatment cost.

We estimate Fisher has over 70% market share in the hospital setting across the 120 countries in which it has a presence. Currently, roughly 3 million patients of an estimated 50 million global annual patient market are receiving NHF therapy, demonstrating the long runway for growth. NHF therapy is generally preferred for hypoxemic respiratory failure and to minimize post-extubation and post-operative respiratory failure, but its range of uses is expanding particularly outside of the ICU setting. Of the 50 million addressable patients, roughly 12 million are ventilator patients from ICU post-extubation. The bulk of the potential lies in emergency departments, yet it is tougher to sell into as under 10% of patients need respiratory support. The speed of clinical practices changing to adopt NHF therapy also depends on growing clinical evidence to support its use, and even so, is a gradual process involving direct marketing at each hospital. Here, Fisher plays the role of educator, both from a clinical and economic point of view, and products get evaluated in situ before final adoption.

An untapped market is NHF therapy for the homecare treatment of COPD. COPD is an even bigger global market opportunity than OSA and currently represents only 10% of homecare revenue. Currently, COPD patients are more commonly treated with NHF therapy in the hospital setting, but ongoing clinical studies are aiming to show its effectiveness in homecare, too.

FPH bulls say

  • The long-term growth opportunity for respiratory support devices is sizable as developing markets are still significantly underpenetrated.
  • Fisher’s earnings are largely defensive and benefit from a growing contribution from higher-margin consumables.
  • Adoption of NHF therapy for the treatment of COPD in the home environment and surgical humidification in hospitals offers additional earnings growth potential.

FPH bears say

  • Changing clinical practices to adopt NHF therapy requires more widespread clinical evidence, and even so, is a gradual marketing process that often takes years and is hospital specific.
  • Fisher is a distant number three player behind ResMed and Philips in homecare treatment of OSA.
  • Increased competition in Fisher’s hospital segment could inhibit growth and lead to margin compression.

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