The old, old story. The fundamental growth story of Biosensors has not changed - a clinically proven BioMatrixTM drug-eluting stent (DES) threatening to steal market shares from established medical device companies, with a next generation stent (BioFreedomTM) in the pipeline. Despite growing penetration, concerns on future price cuts have taken precedence this year. This overhang has not been totally removed, but we see pockets of growth potential that will spark a revival in 2013.

An edge in the China market. There is a strong China element in Biosensors, evident in its shareholding structure and geographical revenue contribution, with JWMS accounting for about a third of total revenue. In our view, Biosensors has an edge in the Chinese market. The SFDA approval for BioMatrixTM has been taking longer than expected, but our recent conversation with the company suggests that Biosensors is now focusing on bringing on Excel II (improved version of Excel Stent) and its next generation product BioFreedomTM to penetrate the Chinese market instead.

M&A activities in the pipeline? Biosensors has professed its intention to morph into a multi-product medical devices company. While it has strong efforts in R&D, the faster way would be through M&A, and it could do so given a strong balance sheet (net cash of USD332m as at 2QFY3/13). We understand that Biosensors is actively looking at such opportunities and have conducted due diligence on certain companies. It also shared that the US is a market it is keen to get into. We think that there is a high chance of seeing some corporate actions in 2013.

More aggressive marketing in Japan. Lower licensing revenue was a drag on 2QFY3/13 results. Terumo is bent on stepping up marketing efforts to regain Nobori’s market share, with Biosensors also setting up offices in Japan to help. In our view, the new licensing agreement favours Biosensors over Terumo with a guaranteed minimum flat fee.

I’ll take if you don’t, Reiterate BUY. On 8 Nov 2012, Biosensors initiated its first ever share buybacks since listing. 19.8m shares were repurchased over 17 trading days at SGD1.08-1.17 per share, demonstrating its confidence. Reiterate Buy with SOTP-based target price of SGD1.38, which implies FY3/13F PER of 14.8x.

Source: Maybank Kim Eng Research - 13 Dec 2012