Can it get cheaper than this?
Biosensors posted results that were largely in line with our expectations. Its 3QFY14 core EPS made up 23% of our full-year forecast, while its 9M number was 72% of our FY14. We keep our below-consensus estimates unchanged. Likewise, our SOP-based target price remains intact. We reiterate our contrarian Add rating, which is premised on the instant success of product launches, regulatory approvals, and M&A accretion.
Results in line
9MFY14’s results did not surprised, coming in at 72% of our full-year forecast because of: 1) a 21% yoy decline in licensing revenue due to continued challenges in Japan, and 2) higher operating expenditure from SG&A arising from its costly brand-building exercise, though better cost measures have been put in place. At the moment, its overall gross margin for products (72%) in 3QFY14 is weak, primarily due to the burden of distribution activities in Japan for the Nobori stents, and its newly-acquired cardiac diagnostic business, both of which have lower gross profit margin contributions.
Same old issues
As with volume growth in the EMEA and APAC regions (in the double-digits, according to management), DES sales in China should improve significantly. However, we believe the persistent ASP weakness has led management to lower its FY14 revenue growth guidance to weak (from 15% previously), similar to forecasts. While there is not much room for improvement in licensing and royalty income in the next few quarters, it is pleasing to note that its initial direct sales penetration in Japan has been yielding positive results.
ADD rating maintained
BIG’s valuation has only priced in its near-term challenges, not a potential earnings lift from the commercialisation of new products in FY15. Other products gaining ground with various regulatory authorities and the soft launch of BioFreedom could become sources of excitement. Its new shareholder CITIC PE is expected to have a lot more say in the globalisation of BIG’s business and restructuring initiatives aimed at improving efficiency and profitability. We maintain our ADD rating.