We believe that concerns over imminent stent price cuts by the China government have manifested into Biosensors International Group’s (BIG) share price recently. Such fears have been overdone, in our opinion, as strong volume increase is expected to buffer the impact of ASP declines. China remains a high-growth market for drug-eluting stents (DES), and we are positive on BIG’s move to enhance its presence there. Besides organic growth, we also expect M&A activities to drive its earnings traction moving forward. While new DES launches by competitors will likely have some negative impact on BIG, we see its first mover advantage and strong positive clinical data as its key competitive advantage. We trim our FY13 revenue and core earnings estimates by 2.6% and 1.5%, respectively, but maintain our BUY rating with a slightly lower DCF-derived fair value estimate of S$1.92 (previously S$1.95).
ASP erosion fears overdone
Biosensors International Group’s (BIG) share price retreated by as much as 16.1% since it reported its 3QFY12 results, although the stock has since recovered partially. We believe investors could be concerned with expected stent price cuts arising from the China government’s imminent tendering process (likely to be summer 2012). Management highlighted to us that an ASP erosion of ~15% is possible, in line with market expectations. Given BIG’s consolidation of JW Medical Systems (JWMS) in 3QFY12, the group would face greater exposure to the drug eluting stent (DES) market in China. While gross margins would be impacted by lower ASPs, revenue could still grow in FY13 due to the buffer provided by expected strong volume increase. As China remains a high-growth market, we are still positive on BIG’s move to enhance its presence there.
Achieving strategic targets via Inorganic growth
We expect inorganic growth to be its strategic focus to achieve its goal of transitioning into a global medical device platform company. Armed with a strong net cash position of US$247.6m (as at 31 Dec 2011), BIG has the ability to carry out M&A activities to expand its product portfolio, especially given its aim of broadening its offerings to include interventional non-cardiac medical devices.
Trimming our estimates, but still sanguine on prospects
Upcoming new DES launches that adopt the biodegradable polymer stent technology by competitors would intensify competitive pressures in the industry. Nevertheless, BIG’s BioMatrix™ DES (which uses a biodegradable polymer) was already fully launched in major markets in Apr 2008. We expect its first mover advantage and proven track record of clinical trial data to provide the group with a competitive edge and buttress its continued growth. There could still be some negative impact as physicians might decide to carry a more diverse product range to increase their offerings to patients. We maintain our FY12 forecasts but trim our FY13 revenue and core earnings projections slightly by 2.6% and 1.5%, respectively. Maintain BUY with a revised DCF-derived fair value estimate of S$1.92 (previously S$1.95).
Biosensors International Group’s (BIG) share price retreated by as much as 16.1% since it reported its 3QFY12 results, although the stock has since recovered partially. We believe investors could be concerned with expected stent price cuts arising from the China government’s imminent tendering process (likely to be summer 2012). Management highlighted to us that an ASP erosion of ~15% is possible, in line with market expectations. Given BIG’s consolidation of JW Medical Systems (JWMS) in 3QFY12, the group would face greater exposure to the drug eluting stent (DES) market in China. While gross margins would be impacted by lower ASPs, revenue could still grow in FY13 due to the buffer provided by expected strong volume increase. As China remains a high-growth market, we are still positive on BIG’s move to enhance its presence there.
Achieving strategic targets via Inorganic growth
We expect inorganic growth to be its strategic focus to achieve its goal of transitioning into a global medical device platform company. Armed with a strong net cash position of US$247.6m (as at 31 Dec 2011), BIG has the ability to carry out M&A activities to expand its product portfolio, especially given its aim of broadening its offerings to include interventional non-cardiac medical devices.
Trimming our estimates, but still sanguine on prospects
Upcoming new DES launches that adopt the biodegradable polymer stent technology by competitors would intensify competitive pressures in the industry. Nevertheless, BIG’s BioMatrix™ DES (which uses a biodegradable polymer) was already fully launched in major markets in Apr 2008. We expect its first mover advantage and proven track record of clinical trial data to provide the group with a competitive edge and buttress its continued growth. There could still be some negative impact as physicians might decide to carry a more diverse product range to increase their offerings to patients. We maintain our FY12 forecasts but trim our FY13 revenue and core earnings projections slightly by 2.6% and 1.5%, respectively. Maintain BUY with a revised DCF-derived fair value estimate of S$1.92 (previously S$1.95).
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