Valuation as of today: at $0.3 a share, $52.72M. At multiple-years lows.
FY21
Revenue: $36m
EBITDA: $2.6m
net profit: $1m
R&D : $4.4m
HY 22:
Revenue: $15m
EBITDA: $1.2m
net profit: $0.3m
R&D : $2.3m
FY 22:
Management's guidance on EBITDA >= $2.6m
From valuation perspective, P/E ratio is around 52, which might look high to most investors.
However, looking closely at the expense, CMP is spending between $4-5m per year on R&D, over 10% of the revenue. From core business perspective, without R&D, it would be earning around $4-5m net profit.
From my opinion, the question is not whether the company is generating enough profit to justify the valuation. The more important question is whether it is worth spending 4-5m on R&D per year. In the recent year, these R&D have not resulted in material increase in revenue. However, in the long term, neuro-imaging and sleep diagnostic remains future-proof industry, in which CMP has #1 market-leading products in Australia, China, Japan and #3 in USA. I do believe R&D is crucial to any company's success, specially in technology.
To me, CMP has 3 medium term drivers and 2 potential step-out , each with different opportunities and challenges:
Medium term drivers
(1) Innovation of existing clinical sleep diagnostic products - O: established market presence/reputation, C: relatively lower growth,
(2) MEG sales - O: high value sales (4-5m per machine), C: logistic challenges, installation cost, new to the market
(3) Somfit devices to consumers O: mass-market market, C: intense competition from other wearable devices
Step-out
(1) Software subscription/licensing - Nexus an CURRY. Subscription and licensing model with low incremental costs,
(2) DWL brain Doppler - Collaboration with ambulance or medical equipment manufacturers
2022 could be a game changer, in terms of the commercialization of Somfit and successful delivery/installation of MEG
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