• 1QFY15 core PATMI dips 18.4% YoY
• Challenging conditions remain
• Lower FV and maintain SELL

1QFY15 earnings below expectations

Biosensors International Group (BIG) reported another insipid set of results, with 1QFY15 core PATMI sliding 18.4% YoY to US$9.9m despite a 4.6% increase in revenue to US$80.2m. The former was BIG‟s weakest performance since 4QFY10. This also came in below expectations, forming 17.0% and 15.9% of ours and the street‟s (based on Bloomberg consensus) FY15 earnings forecast, respectively. Although BIG managed to record a YoY improvement in operational efficiency (based on opex as a percentage of product revenue), this was not sufficient to offset ASP and competitive pressures as its gross margin declined by 4.6 ppt YoY to 74.5% in 1QFY15.

Some positives, but outlook still muted

One positive takeaway from BIG‟s 1QFY15 results was the double-digit YoY volume growth achieved for both its BioMatrix™ family of drug-eluting stents (DES) and Excel stent. However, ASPs were lower as compared to 1QFY14 but stable on a sequential basis. Looking ahead, management is seeking to further expand its next-generation BioFreedom™ drug coated stent rollout, having just enrolled patients for clinical trials in Japan in Jun this year. It plans to start clinical trials in the U.S. within the next two months. Nevertheless, BIG expects market conditions to remain challenging due to intense competition and price erosion in the global DES market. The ongoing transition in Japan from its reliance on licensing and royalty income to a direct sales modus operandi will also take time to see stronger contribution, in our opinion.

Maintain SELL

BIG‟s share price has retreated 10.3% since we last downgraded our rating to a „Sell‟ on 13 Nov 2013, a stark contrast to the STI‟s 4.4% advance during the same period. However, as fundamentals of BIG remain weak in the near-term, in our view, we believe there may be more downside potential ahead. We slash our FY15 and FY16 PATMI projections by 20.5% and 18.1%, respectively, on lower margin assumptions. Our fair value estimate consequently drops from S$0.85 to S$0.68, still pegged to 20x FY15F EPS. Maintain SELL.

Source: OCBC Research - 7 Aug 2014