Biosensors: In Need Of Ballooning!
1. Lower profit margin has deflated Biosensors’ net profit by 80 percent.
2. Operations environment to remain tough for BIG as they shift management.
Biosensors International Group (BIG) announced its 4Q14 result which was needed to boost the financial year. For FY14, the total revenue fell by 7 percent to US$ 71 million while net profit decreased by an alarming 80 percent to US$ 6.1 million.
The sharp decrease in profit was attributed to a lower profit margin in comparison to FY13. Price reduction due to higher competition and overhead cost were the cause of the lower margin. This was despite the fact that research and development (R&D) cost decreased by 58 percent from US$ 10 million to US$ 4.2 million.
Operational environment is expected to remain tough for BIG as the management did not provide any revenue guidance. This was in contrary to the group’s previous practice of providing top line direction. We view this as a vote of no confidence by the management to BIG’s performance in the coming FY.
To counter its operational challenges, BIG is making changes to the management team. Its current CEO, Jack Wang, will take on a new role as Chief Technology Officer while Jose Calle Gordo will replace his position.
This will allow the group to have a professional manager running the show while Jack continues with his research. Having previous experience of managing firms such as Abbott, Eli Lily and Guidant, Jose has a broad experience in the medical device industry.
Despite the change, results of BIG are not expected to improve as we believe more time is needed for the transition. Should there be any upside, it will be on the success of its product (BioFreedom) which was granted permission for a US-based clinical trial by the FDA.
In view of its poor performance and lack of catalyst in near term, OCBC Research maintained its “Sell” call on BIG. They gave the group a target price of $0.85; pegged to 20 times PE of its FY15 forecast.