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Biosensors International Group: Good foresight through JWMS acquisition
 
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Biosensors International Group: Good foresight through JWMS acquisition

By Kelly Chia
Thu, 10 Jan 2008, 09:25:10 SGT

Summary: Biosensors International Group (Biosensors) announced yesterday that it will be acquiring the remaining 50% of leading China based stent maker, JWMS, in 2 phases. JWMS is valued at US$180m and dilution will be about 33%. Biosensor’s strong IP portfolio coupled with JWMS’ distribution network and profitable Excel stent business put it as one of the forerunners in the rapidly growing DES market in China. Biosensors and JWMS will now be able to address the whole spectrum of government tenders with both the Excel and soon to-be-approved Biomatrix DES. We update our bottomline forecasts to factor in new margin information about JWMS and Biosensors. Using standard medtech valuation (30% discount rate of FY10F net profit with average 30x peer PER), fair value is raised to S$1.40 (vs. S$0.99). Maintain BUY.

JWMS acquisition makes good sense. Biosensors International Group (Biosensors) announced that it will be acquiring the remaining 50% of leading China based stent maker, JWMS, in 2 phases. The total acquisition values JWMS at about US$180m (about 11x FY07F PER) and Biosensors shareholders will experience approx 33% dilution when compared to FY07 fully diluted shares outstanding. However, Biosensors is now one of the select few, if not the only, listed interventional cardiology company worldwide with strong IP covering delivery system, drug, polymer and stent with a strong and profitable presence in a rapidly growing China market. See Table 1 for our JWMS projections.

Foresight will be rewarded. We like this acquisition as it shows that Biosensors is not myopic on selling its Biomatrix in the uncertain EU market where recent DES concerns have reduced its usage. China remains the largest market within Asia (ex-JP); accounting for half of the growing US$800m market and we believe that Biosensors has made the right initiative to pounce on this market concurrently through JWMS.

Eating two pies concurrently. With this acquisition, JWMS will now be able to address both spectrums of the government tenders in China. JWMS will market the Excel stent in the locally made (lower priced) and will be able to market Biomatrix (after regulatory clearance) under the imported (higher priced) medical products tenders.

Valuation jumps. We update our bottomline forecasts to factor in new margin information about JWMS and Biosensors. Using standard medtech valuation (30% discount rate of FY10F net profit with average 30x peer PER, see also table 2 for valuation), fair value is raised to S$1.40 (vs. S$0.99). We maintain the discount rate at 30% for the moment as we evaluate BIG’s operational finesse with the JWMS integration and ability to move Biomatrix sales when the CE mark arrives. Should Biosensors be an acquisition target, we deem that its deepened exposure in China along with its CE mark will bump up valuations. Maintain BUY.

 
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