Maintain BUY
Previous Rating: BUY
Current Price: S$1.335
Fair Value: S$1.68
1QFY12 results above expectations. Biosensors International Group (BIG) reported a sturdy set of 1QFY12 results which exceeded our expectations. Revenue rose 72.7% YoY and 28.2% QoQ to US$57.0m, forming 22.3% of our FY12 forecasts (consolidation of JWMS is expected to occur from 2HFY12). Net profit jumped 597.3% YoY and 23.8% QoQ to US$22.6m. Excluding exceptional items, net profit would have increased 143.6% YoY and 44.7% QoQ to US$24.1m; constituting 28.9% of our full-year estimates. BIG's sterling performance was fuelled by higher product sales and a 328.6% jump in licensing revenues as the Nobori stent was launched in Japan by its licensee Terumo during the quarter. The former was largely attributed to growing demand for BIG's BioMatrix family of drug-eluting stents (DES) although the group did not obtain any new major geographical market approval. This exemplifies the increasing market share penetration in existing markets and greater acceptance from physicians as BIG strongly outperformed the overall DES market growth. A better product mix and increased economies of scale in manufacturing also helped to boost its margins. Gross profit and EBIT margins gained traction at 81.1% (+5.4 ppt from 1QFY11 and +1.8 ppt from 4QFY10) and 40.9% (+18.3 ppt from 1QFY11 and +8.4 ppt from 4QFY10) respectively.
DES's large contribution highlights strong competitive positioning. Management maintained that they were happy with their current ASP levels relative to the market, although they are expecting some price erosion in China by year end. With regards to Johnson & Johnson's (J&J) decision to exit the DES market, management highlighted that BIG's DES sales had already been gaining traction over the years given the positive clinical data of BioMatrix against J&J's Cypher stent. However, the group also believes that it can still benefit from physicians who would be looking for a second generation stent after J&J's exit. Total revenue guidance of 50-60% growth for FY12 was reaffirmed, subject to the completion of acquisition of JWMS (remaining 50% equity stake).
Room for further growth; reiterate BUY. While BIG's share price has surged 28.4% since we resumed coverage with a BUY on 15 Oct 2010, we believe that further upside potential exists, given the recent spate of positive developments taking place at group and industry level. These include new earnings drivers from the licensing revenue coming from the Nobori stent in Japan and J&J's decision to exit the DES market, which should underpin BIG's growth momentum moving forward. Taking into account the better-than-expected set of results, we raise our FY12/13F core earnings by 13.4/6.8%. Our DCFbased fair value estimate thus increases from S$1.60 to S$1.68. Reiterate BUY.
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