Biosensors International Group’s (BIG) regional peers have faced headwinds in the Chinese drug-eluting stent market, as highlighted in their recent results announcement. We believe that these factors, such as a slowdown in growth of PCI surgeries, would also have an adverse impact on BIG. However, we expect BIG to continue its market share gains in other key markets such as the EMEA region. BIG is also stepping up its collaboration with its licensee Terumo Corp to address the recent decline in licensing revenue from Japan. Nevertheless, we believe that a further depreciation of the Japanese Yen due to stimulus measures by the Bank of Japan could exacerbate this problem. We thus trim our FY14F revenue and core PATMI forecasts by 0.6% and 1.6%, respectively. However, we maintain our BUY rating although our FCFE-derived fair value estimate declines marginally from S$1.63 to S$1.60.
Market share gains should partially mitigate industry challenges
Biosensors International Group’s (BIG) regional peers Lepu Medical and Microport Scientific Corp recently announced their FY12 results in end Mar. For Lepu, its management attributed the slowdown in topline growth to a deceleration in growth in percutaneous coronary intervention (PCI) surgeries in China and more intense competition in the drug-eluting stent (DES) market. For Microport, its DES sales rose 1.7% to CNY741.7m, driven by a 5.2% increase in volume but partially offset by an estimated 3.3% decline in ASPs. Its management also highlighted higher competitive pressures as four new local players entered the Chinese DES market. Tenders by some provincial governments have also led to stent price cuts and we expect BIG to be adversely affected by this as well. However, this would be partially mitigated by continued market share penetration in its key markets, such as the EMEA region, which is still growing at double-digit pace.
Deepening collaboration with Terumo Corp
Licensing and royalties revenue from Terumo Corp’s (Terumo) Nobori™ DES sales in Japan used to be a key growth driver for BIG when it was launched in May 2011. However, with the increased competitive pressures caused by new product launches, this component became a drag on BIG’s overall revenue growth in the last two quarters. Hence, BIG is stepping up its collaboration with Terumo to promote the Nobori™ DES system at specific specialist cardiology centres in Japan. However, we are cognisant of the negative impact which would result from a further depreciation of the Japanese Yen (JPY) due to stimulus measures by the Bank of Japan.
Maintain BUY with slightly lower FV
We thus trim our FY14F revenue and core PATMI forecasts by 0.6% and 1.6%, respectively. Our FCFE-derived fair value estimate declines marginally from S$1.63 to S$1.60. BIG is currently trading at 14.9x FY14F PER, approximately in line with its 3-year average forward PER. But if we strip out its strong net cash, its FY14F ex-cash PER translates into an attractive 11.0x. Maintain BUY.
Biosensors International Group’s (BIG) regional peers Lepu Medical and Microport Scientific Corp recently announced their FY12 results in end Mar. For Lepu, its management attributed the slowdown in topline growth to a deceleration in growth in percutaneous coronary intervention (PCI) surgeries in China and more intense competition in the drug-eluting stent (DES) market. For Microport, its DES sales rose 1.7% to CNY741.7m, driven by a 5.2% increase in volume but partially offset by an estimated 3.3% decline in ASPs. Its management also highlighted higher competitive pressures as four new local players entered the Chinese DES market. Tenders by some provincial governments have also led to stent price cuts and we expect BIG to be adversely affected by this as well. However, this would be partially mitigated by continued market share penetration in its key markets, such as the EMEA region, which is still growing at double-digit pace.
Deepening collaboration with Terumo Corp
Licensing and royalties revenue from Terumo Corp’s (Terumo) Nobori™ DES sales in Japan used to be a key growth driver for BIG when it was launched in May 2011. However, with the increased competitive pressures caused by new product launches, this component became a drag on BIG’s overall revenue growth in the last two quarters. Hence, BIG is stepping up its collaboration with Terumo to promote the Nobori™ DES system at specific specialist cardiology centres in Japan. However, we are cognisant of the negative impact which would result from a further depreciation of the Japanese Yen (JPY) due to stimulus measures by the Bank of Japan.
Maintain BUY with slightly lower FV
We thus trim our FY14F revenue and core PATMI forecasts by 0.6% and 1.6%, respectively. Our FCFE-derived fair value estimate declines marginally from S$1.63 to S$1.60. BIG is currently trading at 14.9x FY14F PER, approximately in line with its 3-year average forward PER. But if we strip out its strong net cash, its FY14F ex-cash PER translates into an attractive 11.0x. Maintain BUY.
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