Tuesday, August 13, 2013

Biosensors International Group: A quarter to forget (OCBC)

Biosensors International Group:
Fair value S$0.96
add: 12m dividend forecast S$0.025
versus: Current price S$0.975

A quarter to forget
• 1QFY14 core PATMI plunges 57.3% YoY
• Industry headwinds
• Slash FV and downgrade to HOLD

Biosensors International Group (BIG) reported 1QFY14 earnings which were significantly below ours and the street’s expectations. Core PATMI plunged 57.3% YoY to US$12.1m on the back of a 11.2% decline in revenue to US$76.7m, forming 10.1% and 20.0% of our original FY14 forecasts, respectively.
This was due to another lacklustre quarter of contribution from licensing and royalties revenue and an inventory drawdown in its distributor sales channels in China in anticipation of new stent tenders. Our revised FY14 revenue forecast implies a 10.4% growth and comes in below management’s ~15% growth guidance. We also see mounting cost pressures for BIG and slash our FY14 and FY15 core PATMI projections by 34.4% and 29.9%, respectively. Our FCFE-derived fair value estimate falls from S$1.60 to S$0.96. We expect some near-term selling pressure on the stock and downgrade BIG from Buy to HOLD.

1QFY14 core PATMI significantly below expectations
Biosensors International Group (BIG) reported 1QFY14 earnings which were significantly below ours and the street’s expectations. Core PATMI plunged 57.3% YoY to US$12.1m on the back of a 11.2% decline in revenue to US$76.7m. This formed 10.1% and 20.0% of our original FY14 forecasts, respectively. Management attributed this weak performance to another lacklustre contribution from licensing and royalties revenue (-32.7% YoY) and an inventory drawdown in its distributor sales channels in China in anticipation of new stent tenders pricing taking effect. The only bright spot came from continued double-digit sales growth for its drug-eluting stents (DES) in the EMEA and APAC regions.

Our revised FY14 revenue forecast is below management guidance
Management expects its sales in China to recover following the inventory adjustment in 1QFY14, while royalty income from Terumo Corp is also forecasted to improve from 2-4QFY14. However, we believe that this recovery will only be modest given intensifying competitive and ASP pressures. Hence, although management reiterated its guidance for ~15% revenue growth for FY14, we believe this will require a daunting effort to accomplish due to industry headwinds. Our revised US$371.2m revenue estimate implies a 10.4% growth.

Fundamentals have deteriorated; downgrade to HOLD
We also see mounting cost pressures as BIG is incurring higher sales and marketing expenses such as participating in major trade shows in a bid to sustain or grow its market share amid rising competition. Hence, we slash our FY14 and FY15 core PATMI projections by 34.4% and 29.9%, respectively. We also assume that Terumo would not be renewing its licensing agreement (expires in Dec 2014) with BIG for the use of BIG’s DES technology in its Nobori™ stents for sale in territories outside of Japan and the U.S. (previously assumed agreement extension in our forecasts). This stems from the fact that Terumo recently earmarked a new DES which will be fully developed in-house. Our FCFE-derived fair value estimate falls from S$1.60 to S$0.96. We expect some near-term selling pressure on the stock and downgrade BIG from Buy to HOLD.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 12/08/13

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