Equity firm Lodge Partners has forecasted revenue and profits to steadily increase for EZZ in FY23 as it overcomes Covid-19 and Chinese regulatory challenges.

A comprehensive report by equity firm Lodge Partners expects revenues for genomic-tech firm, EZZ Life Science Holdings (ASX:EZZ) to rebound in FY23 as Covid-19 and overseas constraints start to subside.

Lodge Partners said EZZ’s business model, growth strategy and objectives are also strong for future success.

Since its establishment in 2018 EZZ, which focuses on sale, distribution and research into skin care and consumer health products,  has experienced significant growth.

The company, which listed on the ASX in March 2021, has the exclusive distribution rights for the EAORON brand of skin care products to pharmacies, supermarkets and specialist retailers in Australia and New Zealand.

In 2020, EZZ launched its own internally developed brand of consumer products, which it distributes to retailers across Australia, New Zealand, and China.

The company also has stores on leading Chinese e-commerce sites including Tmall Global, owned by Alibaba.

In March EZZ had its ASX listing changed from retail to a pharmaceutical, biotechnology and life sciences company.

EZZ is focused on genomic research and product development to isolate and unpack four key health areas including:

  • genetic longevity
  • human papillomavirus
  • helicobacter pylori, and
  • weight management

 

Covid-19 and China factor impact revenue

While EZZ was able to successfully navigate the first 12 months of Covid-19, recording increased revenues of ~25% to $22.3 million in FY21, the past 12 months has been more difficult.

Lockdowns around much of Australia at various times impacted EZZ, particularly for EAORON products domestically, falling 34% in H1 FY22.

Chinese regulators’ antitrust crackdown on Alibaba also had an impact. Highest margin EZZ products are sold on Tmall Global and it’s where the company generated 43% of its total revenue in FY21.

In response to the uncertainty and anticipated lower margins EZZ dropped its marketing spend by almost 75% to $1.2 million in H1 FY2022.

The report notes stringent lockdowns in China over the first half of year have further dislocated supply chains.

 

Expected rebound in FY23

However, Lodge Partners said issues which have impacted the company in the past year should subside and it is well set up for growth.

“We anticipate that these issues will largely subside over the next 12 months, as lockdowns become a thing of the past throughout the developed world,” the report said.

“As such, we forecast EZZ’s revenues to rebound in FY23 and that both revenues and profitability will steadily increase over the next five years, as the company continues to build out its distribution channels and shift its revenue mix towards the higher-margin EZZ products.”

 

Strong growth strategy and cash in bank

EZZ remains one of the rare profitable biotechnology and life sciences companies on the ASX. At the end of H1 FY22 it maintained a solid cash reserves of $8.9m and no debt.

As well as expanding both the points of sale or distribution channels and jurisdictions, EZZ have detailed both near-term, less than one year, and medium-term, 2-5 years, growth strategies and objectives.

Near term strategies include:

  • Expand EAORON brand of skin care products in Australia and New Zealand through new pharmacy chains, supermarkets, grocery retailers and e-commerce channels.
  • Expand the EZZ brand of consumer health products in Australia and New Zealand through new pharmacy and e-commercial channels.
  • Launch the EZZ brand into new international markets via e-commercial channels, with an initial focus on China, Singapore, Malaysia, Thailand, Philippines, and Indonesia.
  • Establishing an in-house e-commerce capacity via the creation and enhancement of the EZZ website.

 

Medium term strategies include:

  • Introduction of new products over time as well as regular improvements to its flagship products to compete with its rival firms.
  • Engaging a research and development team to optimise the product development process.
  • Shifting manufacturing process in-house to ensure EZZ receives benefits of higher adaptability, enhanced quality assurance and improved cost efficiencies.

 

Higher valuation from Lodge Partners

While EZZ’s share price has taken a hit like many small and mid-caps during global market volatility this year, it is up 15% during the past month in a much-needed July rally for health stocks.

“We have valued EZZ using a discounted cash flow (DCF) model and WACC of 13.93%,” the report said.

“Based on this, we have placed a buy recommendation on EZZ, deriving a valuation of $0.51 per share, representing an implied return of 76% from current levels. “

 

This article was developed in collaboration with EZZ Life Science Holdings, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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