Allied Healthcare Products, Inc.

 AHPI Details

AHPI Rides on Increased Demand for its Products Amid COVID-19 Outbreak: Allied Healthcare Products, Inc. (NASDAQ: AHPI) is engaged in the production and manufacturing of respiratory products, which are utilised in the health care industry. Its products are also utilized in a broad range of hospitals, sub-acute care accommodations, home health care and emergency medical care facilities. The company’s product lines consist of lung care products, respiratory therapy, and medical gas equipment, as well as emergency medical products.

Financial Highlights for the Period Ended 31 March 2020: During the quarter, the company reported net sales of $8.09 million, down from $8.3 million in the year-ago period. Domestic sales (United States) were almost flat year over year, while international sales, which signified 24.1% of 3QFY20 sales, declining approximately 10.7% from the previous corresponding period. Revenues from respiratory care products for the period stood at $2.29 million, almost flat year over year, whereas revenues from emergency medical products stood at $1.96 million, up from $1.65 million reported in the year-ago period. Total orders for AHPI’s products during the quarter came in at $17.8 million, up 125.3% year over year. Domestic orders went up 81.8% year over year and international orders soared 230.3% on pcp. During the quarter, the company reported a gross profit of $1.6 million, flat year over year. Selling, general and administrative expenses for the quarter came in at $1.89 million. The company reported loss from operations of $305K for 3QFY20, narrower than the year-ago loss of  $353K. Net loss for the quarter stood at $330K as compared to a net income of $378K, reported in the year-ago period.

Key Financial Highlights (Source: Company Reports)

Balance Sheet Position: At the end of 31 March 2020, cash and cash equivalents stood at $1.16 million, indicating a rise from $195.4K at the end of June 30, 2019. Total assets at the end of the period amounted to $16 million. The company has no debt as of 31 March 2020. During the nine months ended 31 March 2020, cash from operations amounted to ~$1 million.

Recent Activities: On April 22, 2020, AHPI entered into a loan agreement with Jefferson Bank and Trust Company. The deal was made under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) governed by the U.S. Small Business Administration (the “SBA”). As per the agreement, AHPI will receive total proceeds of $2.375 million from the SBA Loan, which will be utilized for payroll costs and other permissible uses.

COVID-19 Impact: Due to the COVID-19 outbreak, the company witnessed increased demand and orders for its ventilators and other respiratory care products. In meeting the increased demand of ventilators and other products critical to the care of COVID-19 patients, the company made capital investments to add employees, and increased inventory purchases in order to increase production.

Risk Analysis: On the flip side, the company is likely to witness decreased demand for other products due to coronavirus outbreak as hospitals reduced “non-essential procedures.” The uncertainty in the economy may adversely impact the market for the company’s construction products, if hospitals cut down on production and capital enhancements. However, the company is unable to judge the impact of the pandemic on its financial condition, liquidity, operations, and workforce.

Stock Recommendation: The stock of AHPI closed at $11.21 with a market capitalization of $44.99 million. The stock made a 52-week low and high of $0.92 and $45.00 and is currently trading at the lower band of the range. The stock of the company has run up 393.72% in the last three months but corrected ~16.01% in the last one month. Notably, the company’s debt to equity ratio stood at 0.10x in Dec’20, lower than the industry median of 0.26x. On the valuation front, the stock is trading at an EV/EBITDA multiple of 8x as compared to the industry average of 2.3x on TTM (Trailing Twelve Months) basis. Considering the latest results, COVID-19 led crisis, valuation on TTM basis, and current trading levels, we have a watch stance on the stock at the closing price of $11.21, down 5% as on 21 May 2020. 

AHPI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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