Biosensors

Biosensors' 1QFY16 net profit slipped 4.1% y/y to US$9.5m (1QFY15: US$9.9m), achieving only 20% of full year consensus estimates.

Revenue shrank 16.4% to $67m, largely due to a 14.1% slide in product sales to US$60.5m, with interventional cardiology products (which include drug-eluting stents) having the biggest impact, contracting 13.3% to US$53.5m. Sales from licensing and royalties also fell 33.3% to US$6.5m.

Gross margins improved 1.6ppt to 76.1%, buoyed by better margins from its cardiac diagnostic business as well as efficiency gains from its production processes.

The group also managed to reduce its operating costs by 26.6% to US$32.7m (mainly from payrolls and R&D), thereby bolstering operating margin to 27.3% (+8.6ppt).

Despite the cost cutting measures, net profit took hits from:
1) FX loss of US$1m (1QFY15: US$0.25m loss) due to the depreciation of the SGD and EUR against USD
2) Tax charge of US$1m (1QFY15: US$1.3m tax credit)
3) Restructuring cost of US$0.8m

Moving forward, management continues to expect competition, pricing pressures and unfavourable FX conditions to impact its financial performance. Notably, it warned of a double-digit price erosion for DES in China (in line with market prices) and further decreases in licensing revenue from Terumo as performance drags.

On the growth front, Biosensors sees its BioFreedom launch as well as its cardiac diagnostic expansion in Japan as key drivers.

The counter is currently trading at 17.8x forward P/E, and 0.8x P/B. It has 2 Buy, 1 Hold, and 3 Sell ratings with a consensus TP of $0.63.