BIG belief leads to BIG value
We see bright spots in Spectrum Dynamics’s instant success and the positives that regulatory approvals and new launches could bring. A change in its major shareholder from a strategic one to a value-driven one augurs well for BIG.
Under our revised rating structure, our call changes from Outperform to Add. Our EPS and SOP-based target price are unchanged. Our contrarian Add rating hinges on the instant success Spectrum Dynamics, product launches, regulatory approvals and M&A accretion. More importantly, new shareholder, CITIC, could seek to enhance its investment value through more active participation.
Investors can look forward to CITIC as the new shareholder at the start of 2014. Positives that could surface: 1) CITIC will play a more active role, not just in managing BIG‟s operations but also in strategic direction, from M&As to corporate finance. 2) While BIG‟s earnings has been dragged down by weaker contributions from Japan‟s licensing income, BIG‟s objective is to obtain SFDA approval for BioFreedom in China and to add other accretive acquisitions. As this is the forte of private-equity funds, we believe CITIC‟s involvement will work in BIG‟s favour. 3) CITIC‟s choice of owning BIG could be an endorsement of the latter‟s leadership in stent-making and intention to be a serious medical-platform contender, potentially setting BIG apart from the rest of its Asian peers, including Terumo. 4) A privatisation of BIG could even be possible if its current two private-equity shareholders want to rejig the company.
Sources of excitement
Additionally, Spectrum Dynamics will boost earnings when it gets approval from China‟s Food and Drug Administration. BIG is working on multiple product launches to generate new revenues. Other products are gaining ground with various regulatory approvals and the soft launch of BioFreedom remains a source of excitement.
Contrarian positive view
We think BIG‟s cheaper valuation only prices in the near-term challenges and understates the earnings uplift from the commercialisation of new products in FY15.
Publish date: 29/11/13