Cochlear company hit by China's coronavirus outbreak

A slowdown in implant surgeries in China has tempered this year's profit expectations.

Cochlear has warned that the coronavirus outbreak in China is starting to affect its bottom line. Guidance for 2020 net profit has been lowered from $290-300m to $270-290m, a 2-9% increase compared with last year.

China is one of Cochlear's five largest markets. Management says that Chinese hospitals have been deferring surgeries for Cochlear implants to reduce the risk of exposure to coronavirus and the low end of profit guidance factors in a "significant decline" in Chinese sales for the second half of the financial year.

"During the SARS epidemic, Cochlear experienced a material reduction in sales in China over a three-month period, followed by an uplift as the backlog of delayed surgeries cleared," management said.

"We are confident that many of the delayed surgeries will progress once hospitals resume normal operations. No allowance has been made for any impact on sales outside Greater China."

We'll be monitoring how coronavirus impacts surgeries and Cochlear's supply chain, but the current news does not materially change our long-term valuation of the stock.

We're leaving the price guide unchanged for now, though we are likely to raise it when the company releases its interim results on February 18, depending on the outlook. HOLD.

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