ResMed's healthy advantage

A lower dollar and cheap offshore operating costs have contributed to ResMed's above-average returns, while its international competitors' revenues have shrunk.

Sleep apnea device maker ResMed Inc has given a rosy report to the market, with net profit for the year up 21% to over $US 307 million and revenue up 11% to $1.5 billion. In dollar terms it was record revenue and income for the quarter and fiscal year. Locally, the company's share price is up nearly 80% over the past 12 months, easily leading its peers across the technology side of the healthcare industry.

With around half its revenue coming from the US, ResMed has been able to find joy in a falling Australian dollar. Meanwhile, the move of operations from Australia to much cheaper Asian counterparts Singapore and Malaysia has cut costs. The combined result is earnings growing faster than sales. In recent times the best known example of this curiosity is the Apple phenomenon that swept markets circa 2011.

ResMed’s revenue increase is well above local market averages, and comes at a time when companies other than the banks are feeling the pinch of the waning mining boom. On an international scale in US dollar terms, its Australian shares have returned a tidy 50%, easily dominating its foreign peers. In comparison, the returns of its international counterparts operating across the technology side of healthcare have fallen between 20 and 40%.

For the many Australian healthcare companies generating revenue from the US market – specifically CSL, Ramsay Health Care, Cochlear and Ansell – the recovering US economy is providing ongoing support. So to remain competitive and continue the kind of growth its investors have become accustomed to, ResMed will need to remain innovative and keep up with product launches in the key markets in which it operates.

The relevance of the healthcare industry is increasing as most developed nations, including Australia, are ageing. We may not be ageing at the same pace as Japan, but we aren’t as young as India.

Meanwhile, the continuing downward revision of global growth forecasts indicates that we are experiencing a structural shift away from the mining-related sectors that have delivered the growth we are accustomed to. Sectors like healthcare however are required regardless of prevailing economic conditions, and could mop up some spare capacity domestically.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles