Monday, August 19, 2013

Biosensors International : share buyback provides downside protection (CS)

Biosensors International Group Ltd.
Maintain OUTPERFORM
Price (16 Aug 13 , S$) 0.88
TP (prev. TP S$) 1.25 (1.43)
Revisiting the valuation methodology; share buyback provides downside protection

● We revisit the valuation methodology and exclude the licensing revenue from the EPS used in the P/E multiple valuation and treat the licensing revenue as non-operating cash inflow.

● Biosensors signed the technology licensing agreement with Terumo in 2003 when it was a small start-up company and needed capital for R&D. As Terumo is now in the process of developing its own new stents, it may not want to renew the agreement, and hence we assume the licensing revenue to Biosensors will not reoccurring and cease after May 2016.


● Biosensors has been buying back share since Nov 2012. In the current program it can repurchase as much as 171 mn shares. The repurchase price last week was S$0.87-0.88 per share, and it will continue to buy back in share price weakness, in our view. The Chairman also purchased 8.6 mn shares in late July.

● We have cut our EPS forecast for lower margins due to shrinking licensing revenue. New TP S$1.25 is based on 25x FY15E EPS, given 26% EPS CAGR over FY14-16, plus net cash and expected licensing revenue of S$0.26 per share.

Revisiting the valuation methodology
Licensing revenue accounted for as much as 48% of FY13 reported net profit. As the licensing revenue should decline quickly given the intensified competition in Japan market, in our view, it will likely drive down total net profit growth. As Terumo is now in the process of developing its own new stents, it may not want to renew the agreement, and hence we assume the licensing revenue for Biosensors to not reoccur and cease after May 2016.

We adjusted the EPS used in the P/E multiple valuation by excluding the licensing revenue, which is treated as non-operating cash inflow and added back to derive the target price. We have cut our EPS forecast for lower margins due to the expected licensing revenue shrink. Our new target price of S$1.25 is based on 25x FY15E EPS, given 26% EPS CAGR over FY14-16, plus net cash and expected licensing revenue of S$0.26 per share.

Share buyback
Biosensors has been buying back share since Nov 2012. In the current program it can repurchase as much as 171mn shares, and it purchased 9.3 mn shares last week at S$0.87-0.89 per share. We believe it would continue to buy back shares if the share price remains weak. The Chairman also purchased 8.6 mn shares in late July, which also endorses the current share undervaluation.
Maintain OUTPERFORM
We believe the current share price weakness provides an attractive entry point with 42% upside, with the potential on-going share buy back as downside protection. Major risks include the unexpected deterioration of licensing revenue from the Japan market and further ASP erosion in the China market.





Source/Extract/Excerpts/来源/转贴/摘录: CS-Research,
Publish date: 19/08/13

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