Biosensors- a stock on a hearty rise

Background

Biosensors International Group (SGX: B20) is a medical device company that specializes in developing, manufacturing and licensing technologies for use in interventional cardiology procedures and critical care. It is also the Legal Manufacturer of BioMatrix, a drug-eluting stent that utilizes proprietary technologies of Biosensors:

- a biodegradable Poly-Lactic Acid (PLA) polymer (PLA), which degrades into the naturally occurring lactic acid
- the Biolimus A9 drug, a highly lipophilic derivative of sirolimus
- the S-Stent stent platform
- an automated stent coating technology that directly deposits the coating onto the stent surface.

(Source: Wikipedia)

Recent Financial results

For the 9-month ended 31/12/2009, Biosensors' revenue dropped from S$97 million to S$83 million which was due to a sharp drop in Licensing & Royalties Revenue (that more than offset the increase in Product Revenue). As a result, its gross profit & operating profit dropped from S$74 million to S$59 million and from S$21 million to S$14 million, respectively. However, due to a nearly 3-fold increase in Share of Results from JV companies, the company's profit after tax increased from S$10 million to S$24 million.


Table 1: Biosensors's income statement for 9-month ended 31/12/2009 (Source: Company's website)

Financial Position

Biosensors's financial position as at 31/12/2009 is satisfactory with very little borrowings (only bond payable of S$16 million as compared to shareholders' funds of S$132 million) and high current ratio of 1.7 times.


Table 2: Biosensors's Balance Sheet as at 31/12/2009

Management's earning guidance for FY10 & FY11

As per its latest results, the management expects its revenue for FY10 (FYE31/3/2010) to be about S$95-105 million. For FY11, it expects revenue to increase to S$135-145 million. (for more, go here)

Valuation

Based on the 9 months' results, Biosensors's annualized EPS is about USD0.0284 (or, S$0.0395 based on an exchange rate of USD1=S$1.39). As such, Biosensors (closed at S$0.815 today) is now trading at a present PER of 20.6 times. If we used the management's guidance for revenue increase of about 40% to estimate the EPS for FY11, we may arrive at a conservative figure of at least S$0.0550. Based on the conservative estimate, Biosensors's forward EPS is about 14.8 times. As it is based on a conservative estimate, I believe there is room for a higher PE multiple and a higher fair value for this stock.

Technical Outlook

Based on the chart below, we can see that Biosensors has recently corrected back to its long-term uptrend line support at S$68-69. Since then, the stock has rebounded. Today, it enjoyed a gain of 5.5 cents to close at S$0.815.


Chart: Biosensors's daily chart as at Apr 6, 2010(Source: SGX)

Conclusion

Biosensors is a promising company. The stock could be a good long-term investment.