Licensing revenue struggles, Maintain Hold. Unfavorable dynamics for Nobori stents (licensing revenue) in Japan would restrain Biosensors’ overall growth in FY3/14F. Product revenue should continue its growth trajectory but Nobori licensing revenue growth is expected to be flat despite more intense marketing efforts in Japan. Management has guided for a 15% YoY overall revenue growth in FY3/14F. Brace for more M&A activities as Biosensors seeks to expand its product lines for more growth drivers, wherein we think that the associated uncertainties could cap share price performance in the nearterm. Maintain Hold, TP lowered marginally to SGD1.25.

Results within expectations, maiden dividends declared. FY3/13 results were within our expectations with revenue of USD336m (+15% YoY) and net profit of USD114m (-68% YoY, +14% YoY excl. exceptionals). Revenue and net profit make up 100% and 101% of our FY3/13 forecasts respectively. Biosensors also declared maiden dividends of 2.0 US cts/sh which translates to a forward yield of 2.1%.

Existing product lines face challenges. Product sales registered a 32% YoY growth in FY3/13 due to consolidation of JWMS as well as increased sales of BioMatrix DES family products. Product gross margin improved to 81% (FY3/12:76%) as a result of improved economy of scale and better product and geographical mix. However, the DES market is plagued by negative price pressures from government intervention, competition and natural price decline which could see erosion in margins going forward. In Japan, despite efforts to step up marketing of Nobori stents, Biosensors guided for flat licensing revenue growth, which implies that Terumo is unlikely to regain its initial market share.

Needs new growth drivers. New product lines such BioMatrix NeoFlex and contributions from recent acquisition of Spectrum Dynamics could sustain a decent growth rate but we think that a stronger catalyst is needed for positive re-rating, which hopefully could come from valueaccretive acquisitions. We cut FY3/14-15F forecast by 6-8% on lower revenue and margin forecasts. Maintain Hold, SOTP-based TP reduced to SGD1.25.

Source: Maybank Kim Eng Research - 30 May 2013