Biosensors International Group
Singapore Company Focus
Biosensors International Group Bloomberg: BIG SP
|
Reuters: BIOS.SI
DBS Group Research . Equity
6 Oct 2011
BUY S$1.125 STI : 2,528.71
More positives from JWMS
Upgrade from Hold Price Target : 12-Month S$ 1.71 (Prev S$ 1.40) Reason for Report : Company update Potential Catalyst: Product approval in China DBSV vs Consensus: Higher on more optimistic licensing revenue Analyst Alfie YEO +65 6398 7957 [email protected]
S$
R e la t iv e In d e x
1 .6
256
1 .4 1 .2
206
1 .0
50% acquisition of JWMS is a plus. BIG now gets to consolidate JWMS’ financials. BIG is also now well positioned to take advantage in the event BioMatrix Flex is approved for sale in China.
156
0 .8 0 .6
106
0 .4
2009
B io s e n s o r s In t e r n a t io n a l G r o u p ( L H S )
56 2011
2010
R e la t iv e S T I IN D E X ( R H S )
Forecasts and Valuation FY Mar (US$ m)
Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Fully Diluted. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
• FY12/13F earnings raised by 56%/34%
Positive on BIG’s prospects. BIG has completed the acquisition of the remaining 50% stake in joint venture company, JWMS. We believe its outlook will be rosier on the back of : (i) higher earnings contribution from JWMS; (ii) sustained strong licensing revenue from Terumo; and (iii) longer term catalysts from the approval of BioMatrix Flex for the China market.
Price Relative
2008
• Expect licensing revenue to be strong • China catalyst still to come. Upgrade to Buy, TP raised to S$1.71
Andy SIM +65 63987969 [email protected]
0 .2 2007
• Acquisition of an additional 50% in JWMS is positive for earnings
2010A
2011A
2012F
2013F
116 40 34 32 31 3.9 3.9 (2,953) 191 3.9 0.0 17.7 28.5 28.8 71.1 22.1 0.0 6.3 CASH 25.8
157 67 49 43 53 5.2 6.3 32 64 5.1 0.0 37.0 21.6 22.0 33.6 10.6 0.0 3.0 CASH 16.5
312 146 134 119 120 10.5 10.7 103 69 8.7 0.0 61.3 10.7 12.9 nm 7.7 0.0 1.8 CASH 21.0
429 191 172 154 154 12.5 12.5 19 17 11.3 0.0 73.8 9.0 9.9 6.3 5.4 0.0 1.5 CASH 18.5
B: 3
55.5 8.2 S: 0
34.4 11.9 H: 1
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
ICB Industry : Health Care ICB Sector: Health Care Equipment & Servic Principal Business: Manufacturer of medical devices such as drugeluting stents and critical care catheter systems.
Source of all data: Company, DBS Vickers, Bloomberg
www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: JC
Robust growth from licensing revenue. We remain optimistic on the licensing sales from Terumo in Japan and expect licensing sales growth of close to five times to over US$80m in FY12F. We believe further growth opportunities exist as Terumo is still only in its initial stages of marketing the NOBORI stent in Japan. Catalyst still to come. BioMatrix Flex’s approval for sale in China will be a longer term catalyst for BIG. Hypothetically, a 5% market share could add another 8% to FY12F’s revenue of US$312m. Upgrade to Buy, SOTP-based TP S$1.71. We have raised FY12/13F earnings by 56%/34% after taking into account consolidation of JWMS and strong licensing revenue outlook. We SOTP valuation of BIG at S$1.71 translates to 16x forward earnings, equivalent to peers and -0.5 standard deviation PE. Upgrade to Buy with 52% potential upside. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Autumn Eagle (Hony Capital) (%) Weigao Intl (%) Fidelity Mgt (%) Free Float (%) Avg. Daily Vol.(‘000)
1,606 1,807 / 1,386 16.8 16.2 7.7 45.7 4,859
Company Focus Biosensors International Group
Positive on BIG’s prospects Completion of the remaining 50% stake in JWMS removes uncertainty over JWMS’ future. BIG has completed the acquisition of the remaining 50% stake in joint venture company JWMS, from joint venture partner Shandong Weigao. In June 2011, BIG announced that it was acquiring Shandong Weigao’s 50% stake in JWMS for US$508m (S$625m). Under the original joint venture agreement, BIG and Shandong Weigao each held 50% stakes in JWMS, effective for 10 years from 20 August 2003. The acquisition in our view removes any uncertainty over JWMS’s future post August 2013. BIG is fundamentally supported by strong earnings, favourable valuations and growth catalysts. We believe BIG’s outlook is rosier on the back of : (i) more favourable earnings outlook as JWMS is fully consolidated into BIG; (ii) sustained strong licensing revenue from Terumo; and (iii) longer term catalysts from the approval of BioMatrix Flex for sale in the China market. The acquisition of JWMS is positive for BIG’s future prospects
share placement, and 21.6% if it further converts the notes into equity. Funds of S$200m raised from the placement of new shares to Ever Union and Atlantis Investment in February 2011 have been deployed. Consideration for the 50% stake in JWMS Type
Amount
US$
Cash
S$160m
US$130m
260m new shares
S$317m
US$258m
Ordinary shares
Convertible notes
S$148m
US$120m
4% due 2014
Total
S$625m
US$508m
SGD-USD FX: 1.2313 according to acquisition announcement Source: Company, DBS Vickers
23x PE may be high but positions BIG should approval for BioMatrix Flex be granted. BIG is now able to utilise JWMS’ distribution network and manufacturing capacity to introduce more product lines into China following the acquisition. We believe JWMS will be the vehicle to launch the BioMatrix Flex stent when approval for sale in China is granted. Deal structure
Full consolidation of JWMS from 2HFYMar12. BIG now gets to consolidate JWMS’ financials into its own accounts. As guided by management, JWMS will be consolidated from 2HFY12F. We estimate that JWMS will contribute approximately US$50m or 32% of FY13F earnings. JWMS’ price tag of US$508m at 23x prospective PE. Earlier in June, BIG announced that it was acquiring the remaining 50% stake in JWMS owned by Shandong Weigao for approximately US$508m. The acquisition valued JWMS at US$1,016m at prospective PE of 23x, a premium to peer average of 19.5x back then. The consideration would be satisfied by US$130m in cash, US$258m in new shares and US$120m in three year convertible notes. Shandong Weigao would end up as a 16% shareholder as a result of the new
Page 2
Remarks
equivalent
* After conversion of convertible notes Source: Company, DBS Vickers
Company Focus Biosensors International Group
Shandong Weigao and Hony Capital will be involved in driving BIG’s future development. BIG’s board now has 11 directors. The latest additions to the board are two representatives from Shandong Weigao. Besides Shandong Weigao, new investors that took up significant stakes in BIG over the past 12 months include Hony Capital, Ever Union and Atlantis Investment. Both Hony Capital and Shandong Weigao will ultimately play an active role in the development of BIG going forward.
11 directors of BIG (all non-exec. except management) Director
Representation
Lu Yoh Chie
BIG management
Jeff Wang
BIG management
Jeffrey Jump
BIG management
Yuan Bing
Hony Capital
Li Sheng (Replaced John Zhao)
Hony Capital
Zhang Huawei
Shandong Weigao
Jiang Qiang
Shandong Weigao
Adrian Chan
Independent
Aw Soon Beng
Independent
Vincent Ong
Independent
Peter Huggler
Independent
Source: Company, DBS Vickers
Major entry points of significant shareholders Date
Investor
Investment
Price
Mode of shareholder entry
Initial stake
No of shares invested 269,312,200
amount Oct 10
Hony Capital
S$239m
S$0.8888
Purchased from vendor
24.37%
Feb 11
Atlantis Investment
S$100m
S$0.9283
New share placement
8.11%
108,162,900
Feb 11
Ever Union
S$100m
S$0.9283
New share placement
8.11%
108,162,900
Jun 11
Shandong Weigao
S$317m
S$1.2192
Partial consideration for selling
16.2%
260,000,000
to BIG 50% stake in JWMS
Source: Company, DBS Vickers
Dilutive milestones for major shareholders Investor
Date
Amount
Price
Initial stake
No of Shares
Share base
Share base date
S$0.8888
24.37%
269,312,200
1,105,296,021
28 Jan 11
Post purchase of vendor shares by Hony Capital Hony Capital
Oct 10
S$239m
Post new share placement to Atlantis & Ever Union Atlantis Investment
Feb 11
S$100m
S$0.9283
8.11%
108,162,900
1,333,036,630
31 Mar 11
Ever Union
Feb 11
S$100m
S$0.9283
8.11%
108,162,900
1,333,036,630
31 Mar 11
20.2%
269,312,200
1,333,036,630
31 Mar 11
Hony Capital
Post 260m shares issued to Shandong Weigao as partial payment for BIG’s 50% acquisition of JWMS Shandong Weigao
16.2%
260,000,000
1,606,268,107
Atlantis Investment
Jun 11
S$317m
S$1.2192
6.85%
109,976,000
1,606,268,107
3 Oct 11 3 Oct 11
Ever Union
6.73%
108,162,900
1,606,268,107
3 Oct 11
Hony Capital
16.8%
269,312,200
1,606,268,107
3 Oct 11
Post convertible notes conversion by Shandong Weigao (Share base excludes warrants/options conversion) Shandong Weigao
S$148m
Atlantis Investment
S$1.3437
21.6%
370,000,000
1,716,268,107
6.4%
109,976,000
1,716,268,107
Ever Union
6.3%
108,162,900
1,716,268,107
Hony Capital
15.7%
269,312,200
1,716,268,107
Source: Company, SGXnet, DBS Vickers
Page 3
Company Focus Biosensors International Group
Strong licensing revenue growth to continue 1QFYMar12 results exceeded our expectations on the back of strong Terumo licensing revenue from Japan. Revenue for 1Q12 rose 73% y-o-y to US$57m driven by Terumo’s licensing and royalties revenue of US$15.6m, which exceeded our expectations following the launch of the NOBORI DES stent in Japan. Gross margins expanded by 5ppt from 76% to 81% as a result of increased licensing revenue. This led to net profit surging from US$3.2m in 1Q11 to US$22.6m in 1Q12.
Strong licensing revenue more than offset higher costs. Operating expenses rose by 51% from US$17.7m to US$26.7m as a result of higher payroll, increased professional and patent renewal fees, and increased clinical trial expenses. JWMS also contributed a lower US$4.1m compared to US$5.2m in 1Q11 due to higher tax provision. These increases were offset by Terumo’s strong licensing revenue. We expect strong licensing revenue trend to continue. We remain positive on the licensing sales from Terumo in Japan and are estimating licensing sales to swell by close to five times to over US$80m in FY12F from US$17m in FY11. We believe growth opportunities continue to exist as we view that Terumo is still in its initial stages of marketing its NOBORI stent in Japan.
1Q12 results summary and comments FY Mar (US$m) Sales
1Q11
1Q12 chg y-o-y
Comments
33.0
57.0
73%
Cost of Goods Sold
(8.0)
(10.8)
34%
Gross Profit
25.0
46.3
85%
Better product mix
0.2
3.8
2120%
Exchange gains from appreciation of SGD vs USD
(9.4)
(16.1)
71%
Higher payroll, increased trade shows
(4.5)
(6.1)
36%
Increased professional and patent renewal fees
(3.2)
(4.4)
38%
Increased clinical trial expenses
(0.6)
(0.1)
-83%
(17.7)
(26.7)
51%
7.5
23.3
212% 427%
Other operating income Sales & Marketing Expenses Administration Expenses R&D Expenses Other expenses Other Operating Expenses EBIT Interest Income
0.0
0.2
Interest Expense
(1.2)
(1.5)
20%
5.2
4.1
-22%
(6.7)
(1.6)
-76% 407%
Share of JV company Exceptional Gains/(Losses) Pretax Profit Tax Net Profit
Source: Company DBS Vickers
Page 4
4.8
24.5
(1.6)
(2.0)
22%
3.2
22.6
597%
Growth in licensing and royalties revenue
Declined due to increased tax provision
Includes tax on royalty revenue
Company Focus Biosensors International Group
Long term catalyst lies in China product approvals
FY12/13F earnings raised by 56%/34%
Well positioned for China. We had previously anticipated the approval for Terumo’s NOBORI stent to be sold in Japan. Now that Terumo has commenced sales in Japan, we turn our attention to the next share price catalyst – approval for sale of BioMatrix Flex in China. BioMatrix Flex’s status is currently pending approvals by State Food and Drug Administration (SFDA) for sale in China. According to industry sources, the China DES market is worth approximately US$500m. A 5% market share would therefore easily add another US$25m to BIG’s revenue base. This represents an additional 8% on top of our FY12F revenue of US$312m. Following the JWMS acquisition, BIG is now well positioned to launch and benefit from the sale of BioMatrix Flex in China when the product is approved.
Net impact on earnings is positive with consolidation of JWMS and strong Terumo licensing contribution. Based on our analysis, the net impact to earnings is positive having taken into account (i) stronger licensing revenue expectations and (ii) consolidation of 100%-owned JWMS. We consequently raise our earnings estimates for FY12/13F by 56%/35%. EPS impact for FY12F/FY13F is from neutral to positive after accounting for dilution from share placement and full conversion from convertible bonds. EPS revision Estimates
FY12F
FY13F
76
115
Previous earnings (27 May 11) Revised earnings (US$m) Revision
119
154
+56%
+34%
7.2
10.7
Key Risks Previous EPS (27 May 11)
Risks stem from significant performance contributors in JWMS and Terumo. The key risks to our forecast lie in both JWMS and Terumo. JWMS will be consolidated in full from 1H12 and we estimate that JWMS will account for 32% revenues and earnings in FY13F. Lower than expected performance from JWMS will be a significant risk to our earnings estimates. A substantial portion of growth in 1Q12 has been propelled by Terumo’s licensing revenue in Japan and we expect this trend to continue going forward. Lower than expected licensing revenue from Terumo will also be a risk to our earnings estimates.
Revised EPS (S cts) Revision
10.5
12.5
+45.8%
+16.8%
8.7
11.3
Diluted EPS (S cts) – include convertible notes
Source: Company, DBS Vickers
Valuation Upgrade to Buy, SOTP-based TP of S$1.71. Based on SOTP, we derive a TP of S$1.71 which implies 16x PE on forward earnings. This is also equivalent to peer average and -0.5 standard deviation PE. We have consolidated JWMS with BIG’s core operations given that JWMS is now no longer a small part of BIG’s overall business. BIG - at -0.5 standard deviation PE (16x) PE (x)
40
32
+2sd:27.43x 24
+1sd: 22.68X Avg:17.92x
16
-1sd: 13.17x 8
-2sd: 8.42X
0 Jan-09
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Source: DBS Vickers
Page 5
Company Focus Biosensors International Group
Sum-of-parts valuation methodology Valuation - Sum-of-parts
US$m
Remarks
Biosensor and JWMS operations
1,647
DCF, DES mkt share of 3.8% by 2015, WACC 10%, g = 5%
Terumo licensing
511
NPV of Terumo licensing agreement till 2013, WACC: 10%
Net Cash/ (Debt)
142
Equity value
2,300
Total shares (incl. warrants/ options/CB)
1,780
Total equity value US$ m (incl. cash from warrants/options)
2,329
Total equity value S$ m
3,046
Target price (S$)
Source: DBS Vickers
Page 6
1.71
Based on fx of S$1.3078/US$
Company Focus Biosensors International Group Sensitivity Analysis
Key Assumptions FY Mar
Global DES size (US$ DES mkt share (%) Royalties growth (%) JWMS growth (%) Opg exp as % of sales
2009A
2010A
2011A
2012F
2013F
4.5 0.8 700.4 129.7 61.9
4.6 1.3 (79.8) 46.7 54.9
4.8 2.0 88.8 32.6 50.1
4.9 2.5 381.2 20.0 42.5
5.0 3.0 29.5 15.0 41.4
2009A
2010A
2011A
2012F
2013F
11 63 45 119
13 95 9 116
13 126 17 157
14 215 83 312
14 308 107 429
4 41 45 89
5 70 9 84
5 100 17 122
5 126 83 214
6 143 107 255
32.0 65.3 100.0 75.2
39.9 74.3 100.0 72.6
36.1 79.3 100.0 78.0
38.1 58.4 100.0 68.5
39.0 46.4 100.0 59.5
2009A
2010A
2011A
2012F
2013F
119 (29) 89 (73) 16 0 7 (3) (12) 9 (10) 0 0 (1) 11 27
116 (32) 84 (62) 22 0 15 (4) 1 34 (2) 0 0 32 31 40
157 (35) 122 (78) 44 0 19 (5) (9) 49 (6) 0 0 43 53 67
312 (53) 259 (126) 133 0 10 (7) (2) 134 (15) 0 0 119 120 146
429 (70) 359 (173) 186 0 0 (15) 0 172 (17) 0 0 154 154 191
168.4 (212.1) (153.7) (96.5)
(2.3) 47.8 35.4 (2,961.7)
34.8 66.7 102.0 35.0
99.4 120.2 199.3 174.8
37.5 30.2 40.3 29.7
75.2 13.6 (0.9) (1.1) (0.6) (1.4) N/A 5.9
72.6 18.9 27.6 25.8 15.0 12.7 0.0 5.8
78.0 28.3 27.6 16.5 12.3 13.2 0.0 8.6
83.0 42.5 38.1 21.0 16.2 17.7 0.0 19.6
83.7 43.4 35.9 18.5 14.8 17.2 0.0 12.6
FY13F
Licensing revenue +10%
Net Profit +6.2%
Segmental Breakdown FY Mar
Revenues (US$ m) Critical Care Interventional Licensing & Royalties Total Gross Profit (US$ m) Critical Care Interventional Licensing & Royalties Total Gross Profit Margins Critical Care Interventional Licensing & Royalties Total Income Statement (US$ m) FY Mar
Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
Full consolidation of JWMS financials by FY13F Expecting Terumo Japan’s contribution to be strong
Margins Trend 44.0% 39.0% 34.0% 29.0% 24.0% 19.0% 14.0% 9.0% 4.0% -1.0% 2009A
2010A
Operating Margin %
2011A
2012F
2013F
Net Income Margin %
Higher debt
Full consolidation of JWMS from 2H12
Source: Company, DBS Vickers
Page 7
Company Focus Biosensors International Group
Quarterly / Interim Income Statement (US$ m) FY Mar
Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Source: Company, DBS Vickers
Page 8
Revenue Trend
1Q2011
2Q2011
3Q2011
4Q2011
1Q2012
33 (8) 25 (18) 7 0 5 (1) (7) 5 (2) 0 3 10 13
36 (8) 29 (19) 9 0 5 (1) (3) 10 (2) 0 8 11 15
43 (9) 33 (20) 13 0 4 (1) (2) 15 (1) 0 13 15 18
45 (9) 35 (21) 14 0 5 (1) 2 20 (1) 0 18 17 20
57 (11) 46 (23) 23 0 4 (1) (2) 25 (2) 0 23 24 28
0.6 27.1 1.8 (64.3)
10.4 9.9 25.6 161.7
16.6 23.7 38.7 57.6
4.7 10.6 11.0 36.6
28.0 39.4 61.2 23.8
75.7 22.6 9.8
78.7 25.8 23.2
77.7 30.6 31.4
79.3 32.5 40.9
81.1 40.9 39.6
30%
60
25%
50
20%
40
15% 30 10% 20
5%
10
0% -5%
0 9 0 0 2 Q 4
0 1 0 2 Q 1
0 1 0 2 Q 2 Revenue
0 1 0 2 Q 3
0 1 0 2 Q 4
1 1 0 2 Q 1
1 1 0 2 Q 2
1 1 0 2 Q 3
1 1 0 2 Q 4
2 1 0 2 Q 1
Revenue Growth % (QoQ)
Driven by Terumo’s licensing revenue
Company Focus Biosensors International Group Asset Breakdown (2011)
Balance Sheet (US$ m) FY Mar
2009A
2010A
2011A
2012F
2013F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
10 78 12 60 13 19 5 198
10 92 15 60 18 26 7 228
12 116 21 259 22 40 8 478
23 0 436 297 41 77 117 991
39 0 436 463 53 99 8 1,098
ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
47 45 0 2 104 0 198
0 51 29 3 145 0 228
0 62 34 4 379 0 478
0 78 154 4 755 0 991
0 65 120 4 910 0 1,098
(8) 13 41.9 41.3 180.8 0.6 1.1 0.9 CASH (0.1) 10.2 0.0
0 31 70.1 28.8 199.9 0.5 2.2 1.7 CASH (0.2) 6.5 10.0
8 225 76.8 26.5 229.6 0.4 5.4 4.9 CASH (0.6) 8.1 7.7
157 142 68.6 24.9 234.3 0.4 6.8 4.8 CASH (0.2) 9.7 9.4
95 343 74.8 27.9 262.6 0.4 9.6 8.7 CASH (0.4) 16.0 12.8
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (US cts.) Free CFPS (US cts.)
Debtors Net Fixed 9.0% Assets 2.7%
Bank, Cash and Liquid Assets 57.7%
Associates'/J Vs 25.8%
Impact of JWMS consolidation
Existing 8.5% bonds in issue expires on 3 December 2012
Includes US$120m of convertible bonds issued to Shandong Weigao
Capital Expenditure
Cash Flow Statement (US$ m) FY Mar
Inventory 4.8%
2009A
2010A
2011A
2012F
2013F
9 3 (5) (7) (13) 24 11 (5) 0 0 0 (1) (5) 0 0 0 0 0 0 6 2.3 0.6
34 3 (1) (15) (16) 9 13 (2) 0 0 0 0 (2) 0 (12) 1 0 (11) 0 0 2.7 1.0
49 2 (3) (19) (16) 14 28 (3) (7) 0 0 0 (10) 0 0 176 0 176 5 199 4.0 2.3
134 4 (15) (10) (149) 0 (35) (15) (128) (130) 0 (33) (305) 0 120 258 0 378 0 37 7.7 (3.4)
172 4 (17) 0 62 0 221 (19) 0 0 0 (1) (20) 0 (34) 0 0 (34) 0 167 9.9 12.5
25 20 15 10 5 0 2009A
2010A
2011A
2012F
2013F
Capital Expenditure (-)
Cash paid to Shandong Weigao for 50% stake in JWMS 8.5% bonds expire on 3 December 2012 US$120m in convertible bonds issued to Shandong Weigao 260m new shares issued at S$1.2215 per share
Source: Company, DBS Vickers
Page 9
Company Focus Biosensors International Group
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
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Page 10
Company Focus Biosensors International Group
COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as 1. of 04-Oct-2011 2.
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of 6 Oct 2011.
3.
Compensation for investment banking services: i.
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the Biosensors International.
ii.
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Page 11
Biosensors International Group Bloomberg: BIG SP
|
Reuters: BIOS.SI
DBS Group Research . Equity
6 Oct 2011
BUY S$1.125 STI : 2,528.71
More positives from JWMS
Upgrade from Hold Price Target : 12-Month S$ 1.71 (Prev S$ 1.40) Reason for Report : Company update Potential Catalyst: Product approval in China DBSV vs Consensus: Higher on more optimistic licensing revenue Analyst Alfie YEO +65 6398 7957 [email protected]
S$
R e la t iv e In d e x
1 .6
256
1 .4 1 .2
206
1 .0
50% acquisition of JWMS is a plus. BIG now gets to consolidate JWMS’ financials. BIG is also now well positioned to take advantage in the event BioMatrix Flex is approved for sale in China.
156
0 .8 0 .6
106
0 .4
2009
B io s e n s o r s In t e r n a t io n a l G r o u p ( L H S )
56 2011
2010
R e la t iv e S T I IN D E X ( R H S )
Forecasts and Valuation FY Mar (US$ m)
Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (S cts) EPS Pre Ex. (S cts) EPS Gth (%) EPS Gth Pre Ex (%) Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Fully Diluted. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%)
• FY12/13F earnings raised by 56%/34%
Positive on BIG’s prospects. BIG has completed the acquisition of the remaining 50% stake in joint venture company, JWMS. We believe its outlook will be rosier on the back of : (i) higher earnings contribution from JWMS; (ii) sustained strong licensing revenue from Terumo; and (iii) longer term catalysts from the approval of BioMatrix Flex for the China market.
Price Relative
2008
• Expect licensing revenue to be strong • China catalyst still to come. Upgrade to Buy, TP raised to S$1.71
Andy SIM +65 63987969 [email protected]
0 .2 2007
• Acquisition of an additional 50% in JWMS is positive for earnings
2010A
2011A
2012F
2013F
116 40 34 32 31 3.9 3.9 (2,953) 191 3.9 0.0 17.7 28.5 28.8 71.1 22.1 0.0 6.3 CASH 25.8
157 67 49 43 53 5.2 6.3 32 64 5.1 0.0 37.0 21.6 22.0 33.6 10.6 0.0 3.0 CASH 16.5
312 146 134 119 120 10.5 10.7 103 69 8.7 0.0 61.3 10.7 12.9 nm 7.7 0.0 1.8 CASH 21.0
429 191 172 154 154 12.5 12.5 19 17 11.3 0.0 73.8 9.0 9.9 6.3 5.4 0.0 1.5 CASH 18.5
B: 3
55.5 8.2 S: 0
34.4 11.9 H: 1
Earnings Rev (%): Consensus EPS (S cts): Other Broker Recs:
ICB Industry : Health Care ICB Sector: Health Care Equipment & Servic Principal Business: Manufacturer of medical devices such as drugeluting stents and critical care catheter systems.
Source of all data: Company, DBS Vickers, Bloomberg
www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: JC
Robust growth from licensing revenue. We remain optimistic on the licensing sales from Terumo in Japan and expect licensing sales growth of close to five times to over US$80m in FY12F. We believe further growth opportunities exist as Terumo is still only in its initial stages of marketing the NOBORI stent in Japan. Catalyst still to come. BioMatrix Flex’s approval for sale in China will be a longer term catalyst for BIG. Hypothetically, a 5% market share could add another 8% to FY12F’s revenue of US$312m. Upgrade to Buy, SOTP-based TP S$1.71. We have raised FY12/13F earnings by 56%/34% after taking into account consolidation of JWMS and strong licensing revenue outlook. We SOTP valuation of BIG at S$1.71 translates to 16x forward earnings, equivalent to peers and -0.5 standard deviation PE. Upgrade to Buy with 52% potential upside. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Autumn Eagle (Hony Capital) (%) Weigao Intl (%) Fidelity Mgt (%) Free Float (%) Avg. Daily Vol.(‘000)
1,606 1,807 / 1,386 16.8 16.2 7.7 45.7 4,859
Company Focus Biosensors International Group
Positive on BIG’s prospects Completion of the remaining 50% stake in JWMS removes uncertainty over JWMS’ future. BIG has completed the acquisition of the remaining 50% stake in joint venture company JWMS, from joint venture partner Shandong Weigao. In June 2011, BIG announced that it was acquiring Shandong Weigao’s 50% stake in JWMS for US$508m (S$625m). Under the original joint venture agreement, BIG and Shandong Weigao each held 50% stakes in JWMS, effective for 10 years from 20 August 2003. The acquisition in our view removes any uncertainty over JWMS’s future post August 2013. BIG is fundamentally supported by strong earnings, favourable valuations and growth catalysts. We believe BIG’s outlook is rosier on the back of : (i) more favourable earnings outlook as JWMS is fully consolidated into BIG; (ii) sustained strong licensing revenue from Terumo; and (iii) longer term catalysts from the approval of BioMatrix Flex for sale in the China market. The acquisition of JWMS is positive for BIG’s future prospects
share placement, and 21.6% if it further converts the notes into equity. Funds of S$200m raised from the placement of new shares to Ever Union and Atlantis Investment in February 2011 have been deployed. Consideration for the 50% stake in JWMS Type
Amount
US$
Cash
S$160m
US$130m
260m new shares
S$317m
US$258m
Ordinary shares
Convertible notes
S$148m
US$120m
4% due 2014
Total
S$625m
US$508m
SGD-USD FX: 1.2313 according to acquisition announcement Source: Company, DBS Vickers
23x PE may be high but positions BIG should approval for BioMatrix Flex be granted. BIG is now able to utilise JWMS’ distribution network and manufacturing capacity to introduce more product lines into China following the acquisition. We believe JWMS will be the vehicle to launch the BioMatrix Flex stent when approval for sale in China is granted. Deal structure
Full consolidation of JWMS from 2HFYMar12. BIG now gets to consolidate JWMS’ financials into its own accounts. As guided by management, JWMS will be consolidated from 2HFY12F. We estimate that JWMS will contribute approximately US$50m or 32% of FY13F earnings. JWMS’ price tag of US$508m at 23x prospective PE. Earlier in June, BIG announced that it was acquiring the remaining 50% stake in JWMS owned by Shandong Weigao for approximately US$508m. The acquisition valued JWMS at US$1,016m at prospective PE of 23x, a premium to peer average of 19.5x back then. The consideration would be satisfied by US$130m in cash, US$258m in new shares and US$120m in three year convertible notes. Shandong Weigao would end up as a 16% shareholder as a result of the new
Page 2
Remarks
equivalent
* After conversion of convertible notes Source: Company, DBS Vickers
Company Focus Biosensors International Group
Shandong Weigao and Hony Capital will be involved in driving BIG’s future development. BIG’s board now has 11 directors. The latest additions to the board are two representatives from Shandong Weigao. Besides Shandong Weigao, new investors that took up significant stakes in BIG over the past 12 months include Hony Capital, Ever Union and Atlantis Investment. Both Hony Capital and Shandong Weigao will ultimately play an active role in the development of BIG going forward.
11 directors of BIG (all non-exec. except management) Director
Representation
Lu Yoh Chie
BIG management
Jeff Wang
BIG management
Jeffrey Jump
BIG management
Yuan Bing
Hony Capital
Li Sheng (Replaced John Zhao)
Hony Capital
Zhang Huawei
Shandong Weigao
Jiang Qiang
Shandong Weigao
Adrian Chan
Independent
Aw Soon Beng
Independent
Vincent Ong
Independent
Peter Huggler
Independent
Source: Company, DBS Vickers
Major entry points of significant shareholders Date
Investor
Investment
Price
Mode of shareholder entry
Initial stake
No of shares invested 269,312,200
amount Oct 10
Hony Capital
S$239m
S$0.8888
Purchased from vendor
24.37%
Feb 11
Atlantis Investment
S$100m
S$0.9283
New share placement
8.11%
108,162,900
Feb 11
Ever Union
S$100m
S$0.9283
New share placement
8.11%
108,162,900
Jun 11
Shandong Weigao
S$317m
S$1.2192
Partial consideration for selling
16.2%
260,000,000
to BIG 50% stake in JWMS
Source: Company, DBS Vickers
Dilutive milestones for major shareholders Investor
Date
Amount
Price
Initial stake
No of Shares
Share base
Share base date
S$0.8888
24.37%
269,312,200
1,105,296,021
28 Jan 11
Post purchase of vendor shares by Hony Capital Hony Capital
Oct 10
S$239m
Post new share placement to Atlantis & Ever Union Atlantis Investment
Feb 11
S$100m
S$0.9283
8.11%
108,162,900
1,333,036,630
31 Mar 11
Ever Union
Feb 11
S$100m
S$0.9283
8.11%
108,162,900
1,333,036,630
31 Mar 11
20.2%
269,312,200
1,333,036,630
31 Mar 11
Hony Capital
Post 260m shares issued to Shandong Weigao as partial payment for BIG’s 50% acquisition of JWMS Shandong Weigao
16.2%
260,000,000
1,606,268,107
Atlantis Investment
Jun 11
S$317m
S$1.2192
6.85%
109,976,000
1,606,268,107
3 Oct 11 3 Oct 11
Ever Union
6.73%
108,162,900
1,606,268,107
3 Oct 11
Hony Capital
16.8%
269,312,200
1,606,268,107
3 Oct 11
Post convertible notes conversion by Shandong Weigao (Share base excludes warrants/options conversion) Shandong Weigao
S$148m
Atlantis Investment
S$1.3437
21.6%
370,000,000
1,716,268,107
6.4%
109,976,000
1,716,268,107
Ever Union
6.3%
108,162,900
1,716,268,107
Hony Capital
15.7%
269,312,200
1,716,268,107
Source: Company, SGXnet, DBS Vickers
Page 3
Company Focus Biosensors International Group
Strong licensing revenue growth to continue 1QFYMar12 results exceeded our expectations on the back of strong Terumo licensing revenue from Japan. Revenue for 1Q12 rose 73% y-o-y to US$57m driven by Terumo’s licensing and royalties revenue of US$15.6m, which exceeded our expectations following the launch of the NOBORI DES stent in Japan. Gross margins expanded by 5ppt from 76% to 81% as a result of increased licensing revenue. This led to net profit surging from US$3.2m in 1Q11 to US$22.6m in 1Q12.
Strong licensing revenue more than offset higher costs. Operating expenses rose by 51% from US$17.7m to US$26.7m as a result of higher payroll, increased professional and patent renewal fees, and increased clinical trial expenses. JWMS also contributed a lower US$4.1m compared to US$5.2m in 1Q11 due to higher tax provision. These increases were offset by Terumo’s strong licensing revenue. We expect strong licensing revenue trend to continue. We remain positive on the licensing sales from Terumo in Japan and are estimating licensing sales to swell by close to five times to over US$80m in FY12F from US$17m in FY11. We believe growth opportunities continue to exist as we view that Terumo is still in its initial stages of marketing its NOBORI stent in Japan.
1Q12 results summary and comments FY Mar (US$m) Sales
1Q11
1Q12 chg y-o-y
Comments
33.0
57.0
73%
Cost of Goods Sold
(8.0)
(10.8)
34%
Gross Profit
25.0
46.3
85%
Better product mix
0.2
3.8
2120%
Exchange gains from appreciation of SGD vs USD
(9.4)
(16.1)
71%
Higher payroll, increased trade shows
(4.5)
(6.1)
36%
Increased professional and patent renewal fees
(3.2)
(4.4)
38%
Increased clinical trial expenses
(0.6)
(0.1)
-83%
(17.7)
(26.7)
51%
7.5
23.3
212% 427%
Other operating income Sales & Marketing Expenses Administration Expenses R&D Expenses Other expenses Other Operating Expenses EBIT Interest Income
0.0
0.2
Interest Expense
(1.2)
(1.5)
20%
5.2
4.1
-22%
(6.7)
(1.6)
-76% 407%
Share of JV company Exceptional Gains/(Losses) Pretax Profit Tax Net Profit
Source: Company DBS Vickers
Page 4
4.8
24.5
(1.6)
(2.0)
22%
3.2
22.6
597%
Growth in licensing and royalties revenue
Declined due to increased tax provision
Includes tax on royalty revenue
Company Focus Biosensors International Group
Long term catalyst lies in China product approvals
FY12/13F earnings raised by 56%/34%
Well positioned for China. We had previously anticipated the approval for Terumo’s NOBORI stent to be sold in Japan. Now that Terumo has commenced sales in Japan, we turn our attention to the next share price catalyst – approval for sale of BioMatrix Flex in China. BioMatrix Flex’s status is currently pending approvals by State Food and Drug Administration (SFDA) for sale in China. According to industry sources, the China DES market is worth approximately US$500m. A 5% market share would therefore easily add another US$25m to BIG’s revenue base. This represents an additional 8% on top of our FY12F revenue of US$312m. Following the JWMS acquisition, BIG is now well positioned to launch and benefit from the sale of BioMatrix Flex in China when the product is approved.
Net impact on earnings is positive with consolidation of JWMS and strong Terumo licensing contribution. Based on our analysis, the net impact to earnings is positive having taken into account (i) stronger licensing revenue expectations and (ii) consolidation of 100%-owned JWMS. We consequently raise our earnings estimates for FY12/13F by 56%/35%. EPS impact for FY12F/FY13F is from neutral to positive after accounting for dilution from share placement and full conversion from convertible bonds. EPS revision Estimates
FY12F
FY13F
76
115
Previous earnings (27 May 11) Revised earnings (US$m) Revision
119
154
+56%
+34%
7.2
10.7
Key Risks Previous EPS (27 May 11)
Risks stem from significant performance contributors in JWMS and Terumo. The key risks to our forecast lie in both JWMS and Terumo. JWMS will be consolidated in full from 1H12 and we estimate that JWMS will account for 32% revenues and earnings in FY13F. Lower than expected performance from JWMS will be a significant risk to our earnings estimates. A substantial portion of growth in 1Q12 has been propelled by Terumo’s licensing revenue in Japan and we expect this trend to continue going forward. Lower than expected licensing revenue from Terumo will also be a risk to our earnings estimates.
Revised EPS (S cts) Revision
10.5
12.5
+45.8%
+16.8%
8.7
11.3
Diluted EPS (S cts) – include convertible notes
Source: Company, DBS Vickers
Valuation Upgrade to Buy, SOTP-based TP of S$1.71. Based on SOTP, we derive a TP of S$1.71 which implies 16x PE on forward earnings. This is also equivalent to peer average and -0.5 standard deviation PE. We have consolidated JWMS with BIG’s core operations given that JWMS is now no longer a small part of BIG’s overall business. BIG - at -0.5 standard deviation PE (16x) PE (x)
40
32
+2sd:27.43x 24
+1sd: 22.68X Avg:17.92x
16
-1sd: 13.17x 8
-2sd: 8.42X
0 Jan-09
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Source: DBS Vickers
Page 5
Company Focus Biosensors International Group
Sum-of-parts valuation methodology Valuation - Sum-of-parts
US$m
Remarks
Biosensor and JWMS operations
1,647
DCF, DES mkt share of 3.8% by 2015, WACC 10%, g = 5%
Terumo licensing
511
NPV of Terumo licensing agreement till 2013, WACC: 10%
Net Cash/ (Debt)
142
Equity value
2,300
Total shares (incl. warrants/ options/CB)
1,780
Total equity value US$ m (incl. cash from warrants/options)
2,329
Total equity value S$ m
3,046
Target price (S$)
Source: DBS Vickers
Page 6
1.71
Based on fx of S$1.3078/US$
Company Focus Biosensors International Group Sensitivity Analysis
Key Assumptions FY Mar
Global DES size (US$ DES mkt share (%) Royalties growth (%) JWMS growth (%) Opg exp as % of sales
2009A
2010A
2011A
2012F
2013F
4.5 0.8 700.4 129.7 61.9
4.6 1.3 (79.8) 46.7 54.9
4.8 2.0 88.8 32.6 50.1
4.9 2.5 381.2 20.0 42.5
5.0 3.0 29.5 15.0 41.4
2009A
2010A
2011A
2012F
2013F
11 63 45 119
13 95 9 116
13 126 17 157
14 215 83 312
14 308 107 429
4 41 45 89
5 70 9 84
5 100 17 122
5 126 83 214
6 143 107 255
32.0 65.3 100.0 75.2
39.9 74.3 100.0 72.6
36.1 79.3 100.0 78.0
38.1 58.4 100.0 68.5
39.0 46.4 100.0 59.5
2009A
2010A
2011A
2012F
2013F
119 (29) 89 (73) 16 0 7 (3) (12) 9 (10) 0 0 (1) 11 27
116 (32) 84 (62) 22 0 15 (4) 1 34 (2) 0 0 32 31 40
157 (35) 122 (78) 44 0 19 (5) (9) 49 (6) 0 0 43 53 67
312 (53) 259 (126) 133 0 10 (7) (2) 134 (15) 0 0 119 120 146
429 (70) 359 (173) 186 0 0 (15) 0 172 (17) 0 0 154 154 191
168.4 (212.1) (153.7) (96.5)
(2.3) 47.8 35.4 (2,961.7)
34.8 66.7 102.0 35.0
99.4 120.2 199.3 174.8
37.5 30.2 40.3 29.7
75.2 13.6 (0.9) (1.1) (0.6) (1.4) N/A 5.9
72.6 18.9 27.6 25.8 15.0 12.7 0.0 5.8
78.0 28.3 27.6 16.5 12.3 13.2 0.0 8.6
83.0 42.5 38.1 21.0 16.2 17.7 0.0 19.6
83.7 43.4 35.9 18.5 14.8 17.2 0.0 12.6
FY13F
Licensing revenue +10%
Net Profit +6.2%
Segmental Breakdown FY Mar
Revenues (US$ m) Critical Care Interventional Licensing & Royalties Total Gross Profit (US$ m) Critical Care Interventional Licensing & Royalties Total Gross Profit Margins Critical Care Interventional Licensing & Royalties Total Income Statement (US$ m) FY Mar
Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
Full consolidation of JWMS financials by FY13F Expecting Terumo Japan’s contribution to be strong
Margins Trend 44.0% 39.0% 34.0% 29.0% 24.0% 19.0% 14.0% 9.0% 4.0% -1.0% 2009A
2010A
Operating Margin %
2011A
2012F
2013F
Net Income Margin %
Higher debt
Full consolidation of JWMS from 2H12
Source: Company, DBS Vickers
Page 7
Company Focus Biosensors International Group
Quarterly / Interim Income Statement (US$ m) FY Mar
Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%)
Source: Company, DBS Vickers
Page 8
Revenue Trend
1Q2011
2Q2011
3Q2011
4Q2011
1Q2012
33 (8) 25 (18) 7 0 5 (1) (7) 5 (2) 0 3 10 13
36 (8) 29 (19) 9 0 5 (1) (3) 10 (2) 0 8 11 15
43 (9) 33 (20) 13 0 4 (1) (2) 15 (1) 0 13 15 18
45 (9) 35 (21) 14 0 5 (1) 2 20 (1) 0 18 17 20
57 (11) 46 (23) 23 0 4 (1) (2) 25 (2) 0 23 24 28
0.6 27.1 1.8 (64.3)
10.4 9.9 25.6 161.7
16.6 23.7 38.7 57.6
4.7 10.6 11.0 36.6
28.0 39.4 61.2 23.8
75.7 22.6 9.8
78.7 25.8 23.2
77.7 30.6 31.4
79.3 32.5 40.9
81.1 40.9 39.6
30%
60
25%
50
20%
40
15% 30 10% 20
5%
10
0% -5%
0 9 0 0 2 Q 4
0 1 0 2 Q 1
0 1 0 2 Q 2 Revenue
0 1 0 2 Q 3
0 1 0 2 Q 4
1 1 0 2 Q 1
1 1 0 2 Q 2
1 1 0 2 Q 3
1 1 0 2 Q 4
2 1 0 2 Q 1
Revenue Growth % (QoQ)
Driven by Terumo’s licensing revenue
Company Focus Biosensors International Group Asset Breakdown (2011)
Balance Sheet (US$ m) FY Mar
2009A
2010A
2011A
2012F
2013F
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets
10 78 12 60 13 19 5 198
10 92 15 60 18 26 7 228
12 116 21 259 22 40 8 478
23 0 436 297 41 77 117 991
39 0 436 463 53 99 8 1,098
ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab.
47 45 0 2 104 0 198
0 51 29 3 145 0 228
0 62 34 4 379 0 478
0 78 154 4 755 0 991
0 65 120 4 910 0 1,098
(8) 13 41.9 41.3 180.8 0.6 1.1 0.9 CASH (0.1) 10.2 0.0
0 31 70.1 28.8 199.9 0.5 2.2 1.7 CASH (0.2) 6.5 10.0
8 225 76.8 26.5 229.6 0.4 5.4 4.9 CASH (0.6) 8.1 7.7
157 142 68.6 24.9 234.3 0.4 6.8 4.8 CASH (0.2) 9.7 9.4
95 343 74.8 27.9 262.6 0.4 9.6 8.7 CASH (0.4) 16.0 12.8
Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (US cts.) Free CFPS (US cts.)
Debtors Net Fixed 9.0% Assets 2.7%
Bank, Cash and Liquid Assets 57.7%
Associates'/J Vs 25.8%
Impact of JWMS consolidation
Existing 8.5% bonds in issue expires on 3 December 2012
Includes US$120m of convertible bonds issued to Shandong Weigao
Capital Expenditure
Cash Flow Statement (US$ m) FY Mar
Inventory 4.8%
2009A
2010A
2011A
2012F
2013F
9 3 (5) (7) (13) 24 11 (5) 0 0 0 (1) (5) 0 0 0 0 0 0 6 2.3 0.6
34 3 (1) (15) (16) 9 13 (2) 0 0 0 0 (2) 0 (12) 1 0 (11) 0 0 2.7 1.0
49 2 (3) (19) (16) 14 28 (3) (7) 0 0 0 (10) 0 0 176 0 176 5 199 4.0 2.3
134 4 (15) (10) (149) 0 (35) (15) (128) (130) 0 (33) (305) 0 120 258 0 378 0 37 7.7 (3.4)
172 4 (17) 0 62 0 221 (19) 0 0 0 (1) (20) 0 (34) 0 0 (34) 0 167 9.9 12.5
25 20 15 10 5 0 2009A
2010A
2011A
2012F
2013F
Capital Expenditure (-)
Cash paid to Shandong Weigao for 50% stake in JWMS 8.5% bonds expire on 3 December 2012 US$120m in convertible bonds issued to Shandong Weigao 260m new shares issued at S$1.2215 per share
Source: Company, DBS Vickers
Page 9
Company Focus Biosensors International Group
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBS Vickers Securities (USA) Inc (“DBSVUSA”) directly and not its affiliate. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaid entities), that: (a) (b)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 6 Oct 2011, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
Page 10
Company Focus Biosensors International Group
COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as 1. of 04-Oct-2011 2.
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, may beneficially own a total of 1% or more of any class of common equity securities of the company mentioned as of 6 Oct 2011.
3.
Compensation for investment banking services: i.
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the Biosensors International.
ii.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia
This report is being distributed in Australia by DBSVR and DBSVS, which are exempted from the requirement to hold an Australian financial services licence under the Corporation Act 2001 [“CA] in respect of financial services provided to the recipients. DBSVR and DBSVS are regulated by the Monetary Authority of Singapore [“MAS”] under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
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