Biosensors International

OCBC on 26 Jul 2012

Biosensors International Group’s (BIG) reported 1QFY13 results were within our expectations. Revenue accelerated 51.3% YoY to US$86.3m, with solid growth recorded in EMEA, APAC and China. This formed 22.7% of our full-year forecast. Core PATMI rose 17.4% YoY to US$28.3m, in line with our US$29.2m forecast. BIG managed to achieve better economies of scale and a more favourable product and geographical mix for the quarter, which helped to boost its gross margin. However, gross margin is likely to taper down in subsequent quarters as DES price cuts across various regions have yet to be fully realised. We finetune our assumptions and tweak our core PATMI estimates for FY13 and FY14 downwards marginally by 2%. Our DCF-derived fair value estimate eases from S$1.88 to S$1.81. We reiterate our BUY rating as valuations still appear attractive.

1QFY13 core PATMI grows 17.4% YoY to US$28.3m
Biosensors International Group (BIG) reported its 1QFY13 results which were in line with our expectations. Revenue accelerated 51.3% YoY but declined 2.1% QoQ to US$86.3m, or 22.7% of our FY13 forecast. This was driven largely by organic growth from its BioMatrix Flex™ drug-eluting stents (DES) and inorganic growth from the consolidation of JW Medical Systems (JWMS) from 3QFY12. Licensing revenue grew 10.5% YoY but slipped 24.3% QoQ due to a ~15% decline in ASPs. According to management, BIG continued to record solid growth in EMEA, APAC and China during the quarter. PATMI jumped 44.7% YoY and 19.9% QoQ to US$32.6m. Adjusting for exceptional items, core PATMI rose 17.4% YoY but fell 0.9% QoQ to US$28.3m, versus our US$29.2m forecast.

Boost in gross margins and operating cashflows
BIG’s product gross margin showed a significant improvement of 7.0ppt YoY and 5.3ppt QoQ to 81.0% on the back of improving economies of scale from strong unit growth, absence of consolidation costs for JWMS and favourable product and geographical mix. But we believe that BIG’s gross margin is likely to taper down in subsequent quarters as DES price cuts across various regions have yet to be fully realised. BIG’s SG&A expenses spiked up by 43.6% YoY and 8.7% QoQ but we note that this was due partly to expenses incurred for its participation in the EuroPCR, an important interventional cardiology conference in which BIG continued to present positive clinical evidence for its DES products. We expect this to drive its market share gains and revenue moving forward. BIG also generated strong operating cashflows of US$36.3m in 1QFY13, versus US$2.3m in 1QFY12.

Undervalued gem, reiterate our BUY rating
We finetune our assumptions and tweak our core PATMI estimates for FY13 and FY14 downwards marginally by 2%. Our DCF-derived fair value estimate eases from S$1.88 to S$1.81. BIG is currently trading at 12.3x FY13F PER, a 23% discount to its peers’ average 15.9x PER. Reiterate our BUY rating as valuations still appear attractive.