Biosensors International Group Ltd. -
Price (12 Feb 14 , S$) 0.87
TP (prev. TP S$) 1.00 (1.00)
NEUTRAL rating for the short-term earnings weakness; but going private could be a viable option
● 3Q FY14 core earnings declined 44.7% YoY. China revenue was flat as the volume growth was offset by the ASP cut of 15-20%.
● R&D and SG&A expenses rose sharply due to consolidated expenses from SpectrumDynamics and ongoing clinical trials including those for Excel 2 in China, the global study of BioFreedom and the new protocol studies of SpectrumDynamics.
● We believe going private and IPO in Hong Kong or China domestic exchange is a viable option for Biosensors to unlock its value, given:
(1) it has ~US$500 mn cash (and equivalents) with a 37.5% share held by two of the largest PE firms in China and ~52% free float;
(2) it recently appointed the industry veteran Mr. JIANG Qiang (the ex-CFO of Shandong Weigao) as COO; and
(3) Citic PE's recent share acquisition price of $1.05 (purchased from Shandong Weigao).
● We cut our FY14E earnings and maintain NEUTRAL rating for the short-term earnings weakness, but we believe the stock is currently undervalued for its long-term growth potential.
Weakness in China and Japan continues
The recent ASP cut and weak market sentiment due to the anti- corruption campaign continue to put pressure on revenue in China, despite the double-digit volume growth. Licensing revenue from Japan has started to stabilise, but still saw the eighth consecutive quarter of sales growth decline. We believe the company's DES revenue will remain weak for the full year.
R&D expenses increased due to new product development
In 3Q14, Biosensors recorded a significant increase in R&D expense of 77.1% YoY. The R&D expense is mainly utilised to support clinical trials for two Excel programmes, two new protocols of Spectrum Dynamics and the ongoing Leaders programme that involves ~1,800 patients.
Privatisation and re-IPO in Hong Kong may happen
Biosensors appointed Mr. JIANG Qiang as the COO on 29 January 2014. Mr. Jiang is the former CFO of Shandong Weigao and has extensive experience in accounting and financial management. He will take full responsibilities of business development in his new position.
Given that Biosensors has US$689 mn cash with a 37.5% share held by two of the largest PE firms in China (Hony Capital and Citic PE), and recently appointed the industry veteran Mr. Jiang as COO, we believe going private and relisting in Hong Kong could be a viable option.
Our studies of Sihuan Pharma and China Animal Healthcare, both got de-listed from Singapore Exchange and re-listed in Hong Kong, show that re-listing in Hong Kong is likely to lead to higher valuation and better liquidity. We maintain a NEUTRAL rating for the short-term earnings weakness but remain positive on its long-term growth potential. Plus the repurchase programme started in November 2012 is going to provide downside protection.
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 13/02/13