Biosensors International Group: On a growth trajectory (OCBC)

JWMS acquisition augurs well for China growth prospects. We believe that Biosensors International Group (BIG) is set to make further headways in China's growing drug-eluting stent (DES) market, having recently completed its acquisition of the remaining 50% equity stake in JW Medical Systems (JWMS) from Shandong Weigao. Besides the opportunity to capture the full earnings contribution from JWMS, we believe that BIG would further be able to leverage on JWMS' distribution networks to launch its BioMatrix DES once it gains approval from China's State Food and Drug Administration. In addition, welcoming Shandong Weigao as one of its major shareholders would also allow BIG to tap on the former's expertise and influence in China's healthcare market.

Possible upside surprise on licensing revenue front. We believe that BIG could experience an upside surprise on royalty fees from Terumo Corp (Terumo) moving forward, after seeing the solid penetration made by the Nobori DES (incorporates BIG's DES technology in exchange for a licensing fee) after its launch in Japan on 5 May 2011. Terumo highlighted that it managed to capture 30% of the Japan DES market share in two months after its launch. Terumo has also targeted global sales of JPY20b for its Nobori DES for FY12 (FYE 31 Mar, similar to BIG), of which BIG would be a key beneficiary. We opine that Terumo's strong initial penetration in the Japan DES market is set to continue. This is supported by the fact that the Nobori DES is the first made-in-Japan DES, thus allowing it to take advantage of Japanese physicians' loyalty to strong local brands. Furthermore, the Nobori DES had been launched outside of Japan since 2008. Thus there is already positive clinical data to back its efficacy and safety records. In light of these factors, we are increasing our market share gains assumption for the Nobori DES in Japan.

On a growth trajectory; maintain BUY. As such, our revenue forecasts are bumped up by 11% and 6.3% for FY12 and FY13 respectively, while our core earnings estimates for FY12/13F are consequently raised by 11.1%/ 9.6%. We believe that BIG is well-placed to deliver revenue growth that would exceed management's guidance for FY12, which would provide a catalyst for its share price should this materialise. Our new forecasts, coupled with the recent appreciation of the USD versus the SGD, translate into a higher FCFE-derived fair value estimate of S$1.86 (previously S$1.68). Maintain BUY.