Daily ShareChat: Fisher and Paykel Healthcare

First NZ Capital analyst Sarndra Urlich has downgraded her forecast of Fisher & Paykel Healthcare's 2012 earnings towards the lower end of consensus and her forecast of its 2013 earnings is now well below consensus.

Urlich says her previous forecasts looked high, particularly when compared with the earnings profile of the past few years and expected 2011 earnings.

"In other words, how realistic is our earnings 'hockey stick' scenario?"

In 2012, Urlich now assumes a slightly lower-margin product mix, less favourable exchange rate and has raised her expectation of the company's selling, general and administrative (SG&A) expenses to sell its new ICON range of obstructive sleep apnea treatment machines.

"As a reference point, we would note that Resmed spends around 30% to 31% of its revenues on SG&A," Urlich says. She is now expecting Fisher & Paykel to spend 25.5% of sales, up from 24.2% previously.

She is now forecasting an $86 million net profit for the year ending March 2012, down from $97 million previously.

For 2013, she expects a slightly lower exchange rate and slightly higher margins than in 2012, although the latter is lower than her previous forecast. In part, that reflects her expectation the company will spend 7% of sales on R&D, up from 6% previously. She now expects net profit in the year ended March 2013 will be $105 million, down from $121 million previously.

Recommendation: Underperform.

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