Biosensors International

DBS Group Research, May 29

BIOSENSORS International Group's (BIG) FY2014 core net profit (US$46 million, -65 per cent y-o-y) was 9 per cent below our forecast as revenue and margins fell. Revenue fell 4 per cent y-o-y to US$324 million due to:

1) lower licensing and royalty income (US$44 million, -24 per cent y-o-y) from Terumo Corp in Japan; and

2) lower Interventional Cardiology revenue (US$256 million, -3.4 per cent y-o-y) on lower average selling price (ASP) in China for drug-eluting stents.

Gross and operating margins fell as a result of smaller share of licensing and royalty income (high margin) and higher sales and marketing expenses for Japan and Spectrum Dynamics.

The company did not declare dividends for FY2014 following the maiden payout of two US cents per share (30 per cent payout) for FY2013, citing the need to conserve cash resources.

New CEO

BIG announced organisational changes which involved Jack Wang and newly appointed Jose Calle Gordo.

Mr Gordo will be BIG's chief executive officer from Nov 1, replacing Mr Wang who takes over as chief technology officer from the retired John Shulze. Mr Gordo, 52, has over 25 years of experience in medical devices at Abbott, Eli Lilly and Guidant.

He was responsible for leading, developing and commercialising Abbott's Xience and ABSORB drug- eluting stents. He also managed the international operations of Abbott Vascular outside the US in 2011 and 2012.

Muted growth outlook

We expect revenues and margins to be weak ahead. Selling prices will remain soft in China, while licensing income from Terumo is expected to taper off.

In addition, a changing product mix - declining licensing and royalty income from Terumo and larger contribution from lower-margin Spectrum Dynamics' business - will continue to weaken margins.

Maintain "hold" with S$0.90 target price (sum-of-the-parts matrix). Growth will be muted ahead, but there may be upside risk to our call, including Citic Private Equity making a takeover offer for BIG.

HOLD