Nomura Singapore reiterates ‘buy’ on BIOSENSORS and $1.20 target price
Analysts: Lim Jit Soon, CFA, and Tsai Yuan Yiu
Biosensors is the No. 5 player in the drug-eluting stent market.
We reiterate BUY on Biosensors (BIG), highlighting three key growth pillars:BioMatrix’s growing market acceptance, the valuable JV in China and growing royalty income from Terumo. We believe the market is not pricing in the full potential of Terumo’s royalty payments, which should see accelerating growth with the approval of Nobori in Japan, which we expect by end-FY11F (March 2011).
Catalysts
Continued momentum in the forthcoming results, potential value-unlocking of its 50% stake in a domestic DES supplier in China, JWMS, and Japan approval of Terumo’s Nobori, whose technology is licensed from BIG.
Anchor themes
The US$5bn DES industry is one of the most profitable segments in the medical technology space, with market-share changes driven by innovation. Start-ups like Biosensors with leading-edge technology are subject to takeovers by incumbents.
Three pillars of growth
Pillar #1: core DES franchise, global #5 player
Since the launch of BioMatrix in April 2008, BIG has emerged as the number five player in the global drug-eluting stent (DES) market,which is traditionally dominated by the Big Four. With growing market acceptance, BioMatrix looks set to achieve further market share gains in the EU, Asia and LatAm. We estimate a 23% CAGR for DES revenue over FY10-13F.
Pillar #2: well positioned JV in China
JWMS remains well positioned as the number two or three player in China’s profitable DES market. Strict SFDA regulatory standards should raise the entry barrier, and stent pricing pressure appears to have abated for now given repeated delays in the central tender.
Pillar #3: accelerating royalties from Terumo
Nomura Japan medtech analyst Mr Kohtani expects Nobori to receive approval in Japan by end-FY11F (March 2011) and achieve 20% market share in the world’s second-largest DES market worth US$600mn. With the increased cashflow visibility, we have raised our NPV estimate for Terumo royalties from US$85mn to US$132mn.
Adjusting for euro exposure; attractive valuation
We revise down our FY11F earnings forecast by 4% to reflect the weak euro, while FY12F earnings is buffered by a potential boost in Terumo royalties. Reiterate BUY— BIG is trading at 17.2x FY11Fearnings, on an EPS CAGR of 40% over FY10-13F. The group also appears to be well placed to grow, given its prudent net cash balance sheet.
DMG says YANGZIJIANG has extended its earnings visibility
Analyst : Jason Saw
New orders and TDR approval. US$234m (RMB1.6b) new contracts won in 2Q10 boosted YTD contract wins to US$430m (RMB2.9b), equivalent to 29% of FY09 revenue. The new orders for 10 vessels will be delivered before Jul 2012. We expect these contracts to command lower margins as shipyards no longer enjoy the same pricing power during the peak in 2006-08. Following the order wins, we raise FY11F EPS by 3%. Separate news of TDR approval is not likely to cause much excitement given that its intention has been known in the market. Maintain BUY with an unchanged TP of S$1.75 pegged to 15x FY10F P/E.
Yangzijiang is expected to deliver RMB1.2 b in net earnings in 2Q.
Sustaining three year revenue visibility. As at 30 Jun 2010, Yangzijiang (YZJ) has an order book of US$5.23b (RMB35.5b) comprising 124 vessels. This excludes US$338m orders for 20 vessels from 51% owned Jiangsu Yangzijiang Changbo Shipbuilding. Based on its current order book run rate,the orders can last for another three years. In value terms, orders for bulk carriers and containerships account for 51% and 49% of its total order book respectively.
2Q10 results: Likely to be within estimates. We expect 2Q10 earnings to fall within our estimates of RMB1.2b for 1H10. YZJ has delivered US$829m new vessels in 1H10. Based on its deliveries, we expect YZJ to post ~RMB2.9b revenue in 2Q10, representing an increase of 10% from 1Q10. Net margins should stay above 20% due to high priced contracts in the order book. The 2Q10 results willbe released in the second week of Aug 2010.
TDR approval granted. Separately, YZJ also announced that the company has been granted approvals from the Taiwan Stock Exchange (TSE) and Taiwan Central Bank (TCB) for the offering and listing of Taiwan Depository Receipts (TDR) on the TSE. As a recap, YZJ has announced its intention to offer up to 120m TDR on the TSE representing 100m new shares and 20m vendor shares. This will lead to a 2.7% earnings dilution when implemented.
Recent stories:
BIOSENSORS, DESIGN STUDIO: What analysts now say....
YANGZIJIANG, AVI-TECH ELECTRONICS: What analysts say now...
