quipment & Svs│ Singapore 

 

 

November 25, 2013 

 

 

 

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. 

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BIG belief leads to BIG value 

A change in major shareholder from a strategic one to a value-driven 

one augurs well for BIG. Paying a premium over BIG?s last closing 

price, CITIC?s move to replace Weigao signals its greater ambition, in 

our view. 

 

We keep our EPS and SOP-based 

target price. Our unchanged 

contrarian Outperform rating hinges 

on the instant success of BIG?s 

Spectrum Dynamics, product 

launches, regulatory approvals and 

M& A accretion. More importantly, 

new shareholder, CITIC, could seek 

to enhance its investment value 

through more active participation. 

What Happened 

Last Friday, BIG's shareholder 

Shandong Weigao announced that it 

was selling off its entire stake (21.7%) 

in BIG to CB Medical at a price of 

S$1.05/share, representing an 11.7% 

premium to BIG?s last closing price 

of S$0.94 on Thursday. CB Medical 

is an investment vehicle of the CITIC 

Group in China. 

What We Think 

We think: 1) CITIC will play a more 

active role not just in managing 

BIG?s operations but also strategic 

direction, from M& As to corporate 

finance 2) while BIG?s earnings had 

been dragged down by weaker 

contributions from Japan?s licensing 

income (which we think has been 

priced in), BIG?s objective is to 

obtain SFDA approval for 

BioFreedom in China as well as add 

other accretive acquisitions. As these 

could be the forte of private-equity 

funds, we believe CITIC?s 

involvement will work in BIG?s 

favour 3) CITIC?s choice of owning 

BIG could be an endorsement of the 

latter?s leadership in stent-making 

and intent to be a serious 

medical-platform contender, 

potentially setting BIG apart from 

the rest of its Asian peers, including 

Terumo and 4) a privatisation of 

BIG could even be possible if its 

current two private-equity 

shareholders want to rejig BIG. 

What You Should Do 

We think BIG?s valuation has only 

priced in its near-term challenges, 

not a potential earnings uplift from 

the commercialisation of new 

products in FY15. BIG is working on 

multiple product launches for 

generating new revenue. Other 

products are gaining ground with 

various regulatory authorities and a 

soft launch of BioFreedom remains a 

source of excitement. 

 

 

 

CIMB Analyst(s)

 

 

 

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Gary NG 

T (65) 6210 8699 

E gary.ng@cimb.com 

 

 

 

Share price info 

Share price perf. (%) 1M 3M 12M 

Relative -1.8 13.3 -15.5 

Absolute -3 16 -9.3 

Major shareholders % held 

CITIC 21.7 

Hony Capital 15.7 

 

 

 

 

Biosensors Int'l FLASH NOTE 

BIG SP / BIOS.SI 

  Current S$0.98 

 

  Market Cap Avg Daily Turnover Free Float Target S$1.19 

US$1,333m US$2.81m 42.0% Prev. Target S$1.19 

S$1,669m S$3.54m 1,723 m shares Up/Downside 21.4% 

  Conviction| | 

 

Sources: CIMB. COMPANY REPORTS 

 

64

79

94

109

124

0.7

0.9

1.1

1.3

1.5

Price Close Relative to FSSTI (RHS)

Source: Bloomberg

10

20

30

40

Nov-12 Feb-13 May-13 Aug-13

Vol m

 

 

Financial Summary 

Mar-12A Mar-13A Mar-14F Mar-15F Mar-16F

Revenue (US$m) 292.1 336.2 327.5 383.8 429.0

Operating EBITDA (US$m) 103.2 114.6 77.3 119.7 141.7

Net Profit (US$m) 364.3 115.4 49.5 89.0 102.7

Core EPS (US$) 0.058 0.064 0.028 0.051 0.059

Core EPS Growth 22.0% 10.6% (55.6%) 79.6% 15.3%

FD Core P/E (x) 11.11 12.28 27.65 15.39 13.35

DPS (US$) - 0.020 0.020 0.020 0.020

Dividend Yield 0.00% 2.55% 2.55% 2.55% 2.55%

EV/EBITDA (x) 10.62 9.02 14.77 9.73 8.39

P/FCFE (x) NA 6.26 NA NA NA

Net Gearing (24.7%) (27.0%) (20.9%) (18.5%) (16.3%)

P/BV (x) 1.23 1.10 1.26 1.23 1.22

ROE 13.5% 9.4% 4.2% 8.1% 9.2%

% Change In Core EPS Estimates 0% 0% 0%

CIMB/consensus EPS (x) 0.62 0.91 0.92 

 

0.98

1.19

0.83 1.40

Target

52-week share price range

Current

 

SOURCE: CIMB, COMPANY REPORTS Biosensors Int'l 

November 25, 2013 

 

 

 

 

2 

 

 

CITIC to play a more active role than Weigao 

While Shandong Weigao is a medical-equipment maker/distributor in China, 

we believe CITIC?s involvement can possibly bring in a lot more. We think 

CITIC will play a more active role not just in managing BIG?s operations but 

also its strategic direction, ranging from M& As to corporate finance. With 

CITIC feeding BIG with various opportunities, BIG may just be able to emerge 

as a medical-platform company, finally. 

CITIC?s choice of owning BIG is an endorsement of the latter?s leadership in 

stent-making, in our view, and intent to be a serious medical-platform 

contender. This could set BIG apart from the rest of its Asian peers, including 

Terumo. 

Forget about Japan think of what China can offer? 

Although contributions from Terumo have been dwindling in the past year 

(Terumo is in the midst of developing its own DES), all will not be lost for BIG. 

When their agreement ends at end-2014, BIG will have the opportunity to 

pursue the Japanese market without a leash. Moreover, it is the Chinese market 

that BIG really wants. 

? which is product approvals 

BIG has been sharing with investors recently about potential SFDA approval in 

China for BioFreedom in the near term. Our guess is that it will be in the 

summer of 2014. 

The main reason for our contrarian call on the stock (Outperform) is that the 

market seems to be too focused on the weaker numbers related to Japanese 

licensing and not the dynamics of its medical-equipment business around the 

world. 

BIG?s recent acquisition of Spectrum Dynamics was an instant success, that 

should boost its earnings further if approved by China?s Food and Drug 

Administration (SFDA). BIG is working on multiple product launches to 

generate new revenue. Other products are gaining ground with various 

regulatory authorities and a soft launch of BioFreedom remains a source of 

excitement. 

Two private-equity (PE) funds: a lesson in healthcare history 

 

With the completion of the latest transaction, both CB Medical (CITIC) and 

Hony Capital (another big PE fund in China) will be substantial shareholders of 

BIG. CITIC will own 21.7% and Hony Capital, 16%. This is reminiscent of 

Parkway Holdings? (present-day IHH) shareholding developments in 2010. 

We think that having two Chinese PE funds could add to BIG?s corporate 

dynamics, especially given that Shandong Weigao?s involvement in BIG?s 

corporate activities outside China had been fairly muted. 

Background of Shandong Weigao?s substantial stake in BIG 

There were a few transactions leading up to BIG's purchase of a 50% stake in 

JWMS from Weigao (WG) back in Jun 11. 

1) BIG paid WG S$160m 

2) BIG issued 260m shares to WG at S$1.2215/share 

3) BIG issued a 4% convertible note worth S$120m to WG. Exercise price was 

US$1.0913/share (exchange rate then was 1.2313), implying a conversion price 

of S$1.344/share. WG converted its notes in Nov 11 for 110m shares in BIG. 

Weigao, as such, owned 370m shares of BIG from Nov 11, with BIG owning 

100% of JWMS. 

  Biosensors Int'l 

November 25, 2013 

 

 

 

 

3 

 

Background of CITIC 

CITIC is a state-owned investment company of the People's Republic of China. 

It owns 44 subsidiaries, including China CITIC Bank, CITIC Holdings, CITIC 

Trust Co. and CITIC Merchant Co., Ltd (mainly banks) in China, Hong Kong, 

the US, Canada, Australia and New Zealand. 

Who heads CITIC?s PE fund? Liu Lefei, who is the Executive Chairman of 

CITIC?s PE fund. Born in 1973, he was ranked No. 22 of the 25 Most Powerful 

Businesspeople in Asia by Forbes on 20 Apr 11. He also serves as committee 

member of the FTSE Xinhua Index and Reuters China Pension Index. Before 

joining CITIC, Liu had served as CIO of China Life (since Jul 06), where he led 

investments in China Southern Power Grid and China Union Pay. He also 

served as the General Manager of the Investment Management Department of 

China Life Insurance. Before that, Liu served as a General Manager of China 

Galaxy Securities Investment Management LLC (2003-04) and Executive 

Director of Capital Securities (1998-2003). Liu is the son of Liu Yunshan. 

Liu Yunshan is one of the seven members of China?s central politburo, at the 

very top of China?s political structure. He currently holds the positions of First 

Secretary of the Central Secretariat of the Communist Party of China, Chairman 

of the CPC Central Guidance Commission for Building Spiritual Civilization and 

President of the CPC Central Party School. 

 

 

Figure 1: BIG?s numbers show a recovery despite licensing hiccups 

3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 YoY QoQ

Revenue (US$ m)

Interventional cardiology 58.7 61.9 65.7 61.9 64.0 73.3 60.9 66.4 7.3% 9.0%

Critical care 4.0 3.5 3.3 3.6 3.6 3.1 3.4 3.4 -3.6% -0.2%

Cardiac diagnostic 0.7 2.4 - 241.4%

Total Product 62.7 65.3 69.0 65.4 67.6 76.4 65.0 72.2 10.4% 11.0%

Licensing & Royalties 22.0 22.8 17.3 14.3 13.7 12.4 11.6 10.8 -24.6% -7.1%

Total Revenue 84.8 88.2 86.3 79.8 81.3 88.8 76.7 83.0 4.1% 8.3%

Gross Profit (US$ m)

Interventional cardiology 42.1 48.1 54.6 51.1 53.7 61.1 47.7 50.9 -0.2% 6.8%

Critical care 1.6 1.4 1.4 1.4 1.5 1.0 1.1 1.1 -21.5% -1.2%

Cardiac diagnostic 0.2 1.0 - 362.2%

Total Product 43.7 49.5 55.9 52.4 55.2 62.1 49.0 53.0 1.1% 8.2%

Licensing & Royalties 22.0 22.8 17.3 14.3 13.7 12.4 11.6 10.8 -24.6% -7.1%

Total Gross Profit 65.8 72.3 73.2 66.8 68.9 74.5 60.6 63.8 -4.4% 5.2%

Gross Margin (%)

Interventional cardiology 71.7% 77.7% 83.0% 82.5% 83.9% 83.4% 78.3% 76.7%

Critical care 40.5% 39.9% 41.6% 38.8% 40.6% 32.0% 31.9% 31.6%

Cardiac diagnostic 30.7% 41.6%

Total Product 69.8% 75.7% 81.0% 80.1% 81.6% 81.3% 75.4% 73.4%

Licensing & Royalties 100% 100% 100% 100% 100% 100% 100% 100%

Total Gross Margin 77.6% 82.0% 84.8% 83.7% 84.7% 83.9% 79.1% 76.9% 

  SOURCES: CIMB, COMPANY REPORTS 

 

 

 

Figure 2: Sum-of-the-parts valuation 

(US$ m) Comments

BIG Intervention & critical core 279 PV of FCF

Licensing to Terumo 68 PV assumes no renewal after FY15

JWMS 1,120 Pegged at 10x CY14 P/E

Addition of U.S. market 3 PV of FCF potential

Net cash 228 

Total value (US$ m) 1,698 

Total value (S$ m) 2,089 

FD shares outstanding 1,750 

SOP-derived target price (S$) 1.19 

 

  SOURCES: CIMB, COMPANY REPORTS 

 

  Biosensors Int'l 

November 25, 2013 

 

 

 

 

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Figure 3: Peer comparison 

Bloomberg Price

Target 

Price

Market 

Cap Core P/E (x) 3-year EPS P/BV (x)

Recurring 

ROE (%)

Dividend 

Yield (%)

Company Ticker Recom. (lcl curr) (lcl curr) (US$ m) CY2013 CY2014 CAGR (%) CY2013 CY2013 CY2013

Biosensors Int'l BIG SP Outperform 0.98 1.19 1,333 21.1 17.3 -3.2% 1.21 5.5% 2.6%

Asian Peers

Terumo Corp 4543 JP NR 5,330 NA 10,011 21.5 22.1 20.4% 2.18 10.1% 1.0%

Shandong Weigao Group Medical 1066 HK NR 10.18 NA 5,878 33.7 27.1 -27.8% 3.67 11.2% 0.8%

Mindray Medical International MR US NR 40.07 NA 4,706 19.6 18.1 15.0% 3.15 16.4% 1.0%

Lepu Medical Technology Beijin 300003 CH NR 13.69 NA 1,825 27.1 20.2 5.1% 3.83 15.2% 1.2%

Microport Scientific Corp 853 HK NR 5.24 NA 952 22.4 17.8 1.8% 2.35 9.8% 1.6%

Global Peers

Johnson & Johnson JNJ US NR 95.20 NA 268,601 17.4 16.3 18.3% 3.69 21.5% 2.7%

Abbott Laboratories ABT US NR 38.07 NA 58,863 18.9 17.0 -9.6% 2.63 13.1% 1.5%

Medtronic Inc MDT US NR 57.10 NA 56,955 16.8 14.2 7.4% 2.87 19.6% 1.9%

Covidien PLC COV US NR 66.68 NA 30,166 18.3 16.3 2.3% 2.92 17.2% 1.7%

Boston Scientific Corp BSX US NR 11.93 NA 15,929 26.6 22.8 21.7% 2.38 8.9% 0.0%

Hospitals

Bangkok Chain Hospital BCH TB Outperform 6.30 7.20 493 22.3 19.9 0.5% 3.59 16.1% 2.4%

Bangkok Dusit Med Service BGH TB Outperform 129.0 154.0 6,276 30.6 26.1 13.6% 4.96 17.1% 2.0%

Bumrungrad Hospital BH TB Underperform 90.75 94.00 2,077 26.7 23.7 15.5% 6.88 27.9% 1.9%

IHH Healthcare IHH SP Neutral 1.59 1.72 10,336 59.5 35.7 17.7% 1.88 3.3% 0.7%

Raffles Medical Group RFMD SP Outperform 3.15 3.81 1,394 26.0 20.7 16.8% 3.96 16.1% 1.4%

Simple Average 25.5 21.0 7.2% 3.26 14.3% 1.5% 

  SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG