Terumo [4543]

Healthcare | Tokyo (TSE-1)

Motoya Kohtani +81-3-5255-1640 motoya.kohtani@nomura.com

Positive findings in Nobori trial data

Why now?

We revise our earnings estimates to reflect Nobori 2 trial data and our discussions

with company representatives.

Investment perspective

The stock has been held back by an unclear pipeline of new products and the

likelihood of weak Apr–Jun 2010 earnings in comparison to Apr–Jun 2009, when

margins were high owing to upfront costs posted in the previous quarter. Recently,

however, a special new product has been faring well, raising our expectations for

its launch in Japan as a major new product in 12/3.

Valuation

We value medical equipment companies using a combination of DCF modeling

(50%) and average P/Es over the past five years (50%). Our DCF model gives a

fair value of ¥6,100, as we have not changed our earnings estimates for 14/3

onward, while applying the past-five-year average P/E of 24x to our 11/3 EPS

forecast gives a fair value of ¥5,600. We maintain our target price of ¥5,850.

Sector theme

Terumo is in the disposable medical equipment business, which has particularly

high barriers to entry related to safety, brand strength, and global sales networks.

Terumo is a leader in Japan’s medical equipment industry, as it is highly capable at

developing equipment that satisfy the needs of the medical community and

improving products that is typical of a Japanese company.

2 July 2010

Report no

Target price. 10-1807

¥5,850

Target price vs current price +39.5%

Previous target price (14 May)

¥5,850

Price (2 July close)

¥4,195

52-week high 5,730

low 4,110

Market cap (¥bn)

BUY 884.6(PREVIOUS: Buy)

Estimates and financial data

Company data, Nomura estimates except where noted.

Share price chart: Terumo [4543]

Solid line: Price adjusted for corporate action

Dotted line: Price relative to TOPIX

Source: Nomura

Please read the important

disclosures and analyst

certifications on pp. 8–11.gl

Nomura Securities Co Ltd, Tokyo

Japanese Equity Research – Flash Report

Cons 10/3 11/3E 12/3E 13/3E

Sales (¥mn) 316,009 340,400 371,800 407,200

% y-y 4.4 7.7 9.2 9.5

Prev - 336,000 363,000 385,000

Co's - 333,000 - -

Ope profits (¥mn) 63,282 68,000 76,000 87,000

% y-y 17.1 7.5 11.8 14.5

Prev - 68,000 76,000 85,000

Co's - 65,200 - -

Rec profits (¥mn) 63,611 68,500 76,500 87,500

Prev - 68,500 76,500 85,500

Net profits (¥mn) 40,721 44,000 49,000 56,500

Prev - 44,000 49,000 55,200

EPS (¥) 214.4 231.7 258.0 297.5

Prev - 231.7 258.0 290.7

BPS (¥) 1,669 1,873 2,095 2,352

ROE (%) - 12.3 12.4 12.8

D/E ratio (x) - 0.1 0.0 0.0

P/E (x) - 18.1 16.3 14.1

EV/EBITDA (x) - 9.0 7.8 6.6

P/B (x) 2.5 2.2 2.0 1.8

Dividend yield (%) - 0.8 0.9 1.0

2 July 2010

Nomura Research 2

•

sales projection for the Nobori drug-eluting stent in light of the favorable

findings in trials. We now assume that Nobori will be approved for sale just

before the end of 11/3 or soon after the start of 12/3, earlier than we

previously thought. We expect domestic sales of Nobori to amount to ¥4bn in

12/3, considering the product’s superior performance and because it will be

the first domestically produced drug-eluting stent. We look for a rapid

proliferation to ensue, but its spread could be undermined by high prices set

due to a high royalty ratio. We expect Nobori to capture a 20% share of the

domestic market over the long term. (BB)Nobori drug-eluting stents likely to take off from 12/3: We raise our longterm