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Breakdown: Biosensors’ Disappointing Results Still A Cause For Anticipation?
Breakdown, Tradeable | 14 February 2013
By: Simeon Ang
Articles (125) Profile

It is hard to be positive when you are staring at a year-on-year drop of 74.6 percent in net profits. That is precisely what Biosensors International Group’s report card read after its 7 February release. For the third quarter, Biosensors’ net profits tumbled 91.4 percent (US$24.9 million versus US$291.5 million) even though revenue was down only 4 percent (US$81.3 million versus US$84.7 million). The main culprit for the huge drop came in the form of Biosensors’ recognition of a gain (US$273.2 million) on remeasurement of a joint venture company in the previous corresponding quarter, 3Q12. Stripping that, net profit for the current quarter, 3Q13, would have been 36.3 percent higher.

Even so, a slightly worrying aspect of Biosensors’ top line performance revealed a 37.8 percent drop in licensing and royalties revenue (US$13.7 million versus US$22 million). The segment contributed 16.9 percent to total revenue versus the corresponding quarter’s 26 percent. The company’s management attributed this to a reduction in license sales in Japan.

Having the unenviable task of sifting through and analysing Biosensors’ financial reports, analysts from three research houses shared their thoughts about the counter in their research reports. Here are some excerpts and what to make out of them.

Gary Ng of CIMB stood out of the three by saying that Biosensors’ core earnings was largely in-line with CIMB’s expectations but said that,

“The latest results reflect the challenges of licensing revenue in Japan, though the pressure could be starting to ease.”

Gary points to Bionsensors’ same-day announcement of a collaboration with Terumo to further strengthen its Japanese product’s (Nobori) competitive position in Japan. The collaboration could help increase Nobori’s market share as well as royalty revenue.

Gary’s Call: OUTPERFORM, with target price of $1.75 (potential upside of 31.6 percent*)

OCBC Investment’s Andy Wong notes that Biosensors’ revenue have come in 11.2 percent below their forecast. Despite a lowering of its revenue growth guidance, Andy points out that,

“BIG (Biosensors) maintained its initial expectations on robust product revenue growth. It continued to deliver double-digit year-on-year product sales growth…”

This is substantiated by Biosensors’ 38.4 percent jump year-on-year in total product sales for the first nine months of fiscal year 2013. Overall, 9M13 gross profit margins from product sales continues to be at a healthy 80.9 percent.

However, Andy pared Biosensors’ profit projections for FY13 and FY14 due partly to higher interest payments from its recent bond issuance (4.875 percent interest).

Andy’s Call: BUY, with target price of $1.63 (potential upside of 22.6 percent*)

Biosensors’ recent bond issuance has also raised hopes of a possible acquisition deal. Alfie Yeo and Andy Sim of DBS Vickers share,

“We are more optimistic on BIG’s (Biosensors) impending acquisition than 3Q13 results… We believe [it] might announce an acquisition soon.. Given management’s preference for market approved product technology, the acquisition targets are likely to be earnings accretive in our view.”

Alfie and Andy’s Call: BUY, with target price of $1.71 (potential upside of 28.6 percent*)

It is quite hard to find analysts so optimistic about a counter even though results have largely been unable to meet expectations. With speculation rife about a potential acquisition deal, Biosensors might appear cheap especially after the initial sell-down due to the disappointing earnings result. Although the risk remains, will this acquisition target really be accretive? Only time will tell.

*Based on Biosensors’ closing price of $1.33 on 8 February 2013.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.


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