Biosensors International BIG SPEALTH CARE & PHARMACEUTICALS | SINGAPORE

Jit Soon Lim, CFA +65 6433 6969 jitsoon.lim@nomura.com

Yuan Yiu Tsai +65 6433 6964 yuanyiu.tsai@nomura.com

NDR feedback

�� TKY: alliance with Terumo underpins investor interest

Several investors who last met the company during the IPO roadshow

in 2005 now appear more convinced with BIG’s growth story,

supported by the strong sales trend and its alliance with Terumo.

Management believes the alliance supplements its limited marketing

capabilities and allows its technology to capture a bigger slice of the

pie. In particular, BIG is well-positioned to receive royalty income from

Nobori’s potential sales in Japan, the world’s second-biggest DES

market (US$800mn) where Terumo has distribution exclusivity.

�� Hong Kong: focus shifting towards BIG’s core franchise

Management introduced its leading-edge technology and outlined its

strategy to drive market share with BioMatrix in the near term and in

the longer run, maintain its technology edge with polymer-free DES

BioFreedom. Investors now appear keener to learn about BIG’s core

franchise, with fewer questions asked on Weigao/JWMS.

�� Key concern: China strategy, not stent pricing

The key concern raised is on BIG’s China strategy, particularly the

potential shareholding restructuring of its JV JWMS. Management

reassured investors that the ongoing strategic discussions with

Weigao are predicated on the interests of both parties. There were

minimal discussions on China stent pricing pressure, suggesting that

it is a well-known risk which we argue is largely priced in.

�� Reiterate BUY: investor education is key

Given the lack of comparables in Asia, we believe investor education

is key in expanding BIG’s institutional investor base. Post its steep

correction, BIG’s share price has recovered 15% (vs 3% for the STI)

month-to-date. Next key event: Terumo’s first Nobori Japan trial

update in TCT-AP (29 April, Korea).

Key financials & valuations

31 Mar (US$mn) FY09 FY10F FY11F FY12F

Revenue 73.9 119.2 159.6 211.4

Reported net profit (1.1) 33.3 41.9 62.2

Normalised net profit (34.3) 33.3 42.6 62.9

Normalised EPS (US$) (0.029) 0.028 0.036 0.053

Norm. EPS growth (%) na na 28.2 47.5

Norm. P/E (x) na 20.8 16.3 11.0

EV/EBITDA (x) na 17.0 11.8 8.1

Price/book (x) 5.8 4.4 3.4 2.5

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) (1.1) 27.2 25.9 29.1

Net debt/equity (%) net cash net cash net cash net cash

Earnings revisions

Previous norm. net profit 33.3 42.6 62.9

Change from previous (%) - - -

Previous norm. EPS (US$) 0.028 0.036 0.053

Source: Company, Nomura estimates

Closing price on 9 Apr S$0.82

Price target S$1.17

(set on 15 Mar 10)

Upside/downside 43.5%

Difference from consensus 36.0%

FY11F net profit (US$mn) 41.90

Difference from consensus na

Source: Nomura

Nomura vs consensus

We believe consensus

underestimates BIG’s core earnings

despite recognizing its strong

revenue growth trend

Maintained

BUY

NOMUR A S INGAP ORE L IMI TED

�� Action

We hosted Biosensors on an NDR in Tokyo and Hong Kong last week, which was

well-received by investors, most of whom are new to the sector. Management

introduced its leading-edge technology and reiterated its focus to gain market

share. BUY – share price has recovered 15% (vs 3% for STI) month-to-date.

��Catalysts

Continued momentum in its forthcoming results, the potential value-unlocking of its

50% stake in domestic DES (drug-eluting stent) supplier in China, JWMS, and

Japan approval of Terumo’s Nobori, whose technology is licensed from BIG.

Anchor themes

The US$5bn DES industry is one of the most profitable segments in the medical

technology space, with market share changes driven by innovation. Start-ups like

Biosensors with leading-edge technology are subject to takeovers by incumbents.

Biosensors International Jit Soon Lim, CFA

Nomura 2 12 April 2010

Exhibit 1. SOTP valuation of Biosensors and key risks to our price target

(US$mn) Remarks

BioMatrix 106 DCF value of standalone product, assuming 6-year life cycle and peak OUS (ex-Japan) market share of 6% by FY12F

DES Business valuation 252 9.2x P/E of trough terminal earnings of BioMatrix, discounted to present value

Base business 112 DCF (WACC: 9.7%, terminal value: 0%)

JWMS 422 22x 10F P/E

PV of Terumo royalties 85 DCF value (WACC:9.7%) over 5-year licensing agreement

Net cash/(debt) 18 End-FY10F

Total (US$mn) 995

Total (S$mn) 1,392

Diluted # of shares (‘000) 1,191 Assuming full dilution of outstanding options and warrants1USD:1.40SGD

Price Target (S$/share) 1.17 Key risks to PT:

1) Possible loss of market share in Germany post MDT’s acquisition of Krauth, the sole distributor of BioMatrix in the country;

2) Execution amid strong competition. Notwithstanding our positive view, BIG is still a small independent DES company which will

continue to see competition from dominant competitors and face execution issues like most small start-ups.

Source: Nomura estimates

Nomura vs consensus

We believe investors have to exercise discretion when looking at consensus numbers

due to the wide divergence in estimates, perhaps as a result of BIG’s limited analyst

coverage. We highlight two key discrepancies:

i)

In absolute terms, the difference is US$1~5mn over FY10-12F. Given the lack of

transparency in the full financials of JWMS, JWMS net profit forecast is not only

subject to top-line but also R&D spend, which includes expenses for clinical trials. We

have assumed a flat net margin of 45% in FY11/12F.

ii)

net profit (ex-JWMS) estimates are significantly above consensus. We believe this is a

result of different assumptions on sales & marketing and R&D expenses. Most notably,

9M09A net profit (ex-JWMS) has already exceeded consensus FY10F forecast by 32%,

implying a loss in 4QFY10F despite BioMatrix’s launch in France during the quarter.

This could imply that consensus is behind the curve, in our view.

Despite the wide disparity in net profit estimates, we highlight a key similarity – the

strong revenue growth trend is consensus among the street and Nomura, which we

believe underscores BioMatrix’s strong growth potential.

In our view, sales are arguably more important than net profit for a small medtech

company as net profit is heavily influenced by R&D spending, which is an investment

for the future. Additionally, in an M&A scenario, an acquirer typically uses a price/sales

valuation metric as earnings are largely irrelevant given the potential cost synergies.Associate contributions from JWMS – our estimates are 8-31% higher than the street.Core net profit (excluding JWMS) – Despite similar revenue growth trend, our core

Exhibit 2. P&L — Consensus (ex-Nomura) vs. Nomura estimates

(Mar FYE) FY10F FY11F FY12F Remarks

Revenue

Consensus 117 163 191 9M09A met 71% of FY10F forecast

Nomura 119 160 211

% diff 2 (2) 9

Associate contributions from JWMS

Consensus 15 14 18 9M09A met 67% of FY10F forecast

Nomura 16 18 23

% diff 8 22 31

Net profit

Consensus ex-Nomura 23 28 28 9M09A met 90% of FY10F forecast

Nomura 33 43 63

% diff 46 54 125

Net profit ex-JWMS

Consensus 8 13 10 9M09A met 132% of FY10F forecast

Nomura 17 25 39

% diff 116 87 291

Source: Bloomberg estimates, Nomura research; Note: consensus estimates exclude Nomura

9M09A ex-JV net profit has

already exceeded full year

consensus forecast by 32%

We believe consensus is behind

the curve

Despite the divergence in net

earnings, Biosensors’ revenue

trend is a consensus between the

street and Nomura

Biosensors International Jit Soon Lim, CFA

Nomura 3 12 April 2010

Strong contributions from

JWMS

Financial statements

Income statement (US$mn)

Year-end 31 Mar FY08 FY09 FY10F FY11F FY12F

Revenue

Cost of goods sold (23.7) (29.5) (33.3) (44.7) (54.5)44.3 73.9 119.2 159.6 211.4

Gross profit 20.6 44.5 86.0 114.9 156.9

SG&A (63.0) (67.8) (65.7) (80.8) (105.6)

Employee share expense

Operating profit (42.4) (23.3) 20.3 34.2 51.4

EBITDA (39.1) (19.8) 23.9 39.0 56.3

Depreciation (2.7) (2.9) (2.6) (2.7) (2.9)

Amortisation (0.6) (0.6) (1.0) (2.1) (2.1)

EBIT (42.4) (23.3) 20.3 34.2 51.4

Net interest expense (0.6) (2.8) (2.4) (3.9) (3.8)

Associates & JCEs 2.8 7.3 15.8 17.5 23.4

Other income 5.4 (5.5) 1.9 - -

Earnings before tax (34.7) (24.3) 35.6 47.8 71.0

Income tax (3.6) (10.0) (2.4) (5.1) (8.1)

Net profit after tax (38.3) (34.3) 33.3 42.6 62.9

Minority interests - - - - -

Other items

Preferred dividends - - - - -

Normalised NPAT (38.3) (34.3) 33.3 42.6 62.9

Extraordinary items 6.7 33.1 - (0.7) (0.7)

Reported NPAT (31.6) (1.1) 33.3 41.9 62.2

Dividends - - - - -

Transfer to reserves (31.6) (1.1) 33.3 41.9 62.2

Valuation and ratio analysis

FD normalised P/E (x) na na 2 0.8 16.3 11.0

FD normalised P/E at price target (x) na na 2 9.9 23.3 15.8

Reported P/E (x) na na 2 0.8 16.5 11.2

Dividend yield (%) - - - - -

Price/cashflow (x) na 8 3.8 95.3 61.1 26.5

Price/book (x) 5 .5 5.8 4.4 3 .4 2.5

EV/EBITDA (x) na na 1 7.0 11.8 8 .1

EV/EBIT (x) na na 1 8.7 12.9 8 .6

Gross margin (%) 4 6.5 60.2 72.1 72.0 74.2

EBITDA margin (%) ( 88.2) (26.7) 20.0 24.4 26.6

EBIT margin (%) ( 95.6) (31.5) 17.0 21.4 24.3

Net margin (%) ( 71.2) ( 1.5) 27.9 26.2 29.4

Effective tax rate (%) na na 6 .6 10.7 11.4

Dividend payout (%) na na - - -

Capex to sales (%) 8 .2 6.4 2.0 1 .5 1.1

Capex to depreciation (x) 1 .3 1.6 0.9 0 .9 0.8

ROE (%) ( 37.6) ( 1.1) 27.2 25.9 29.1

ROA (pretax %) ( 39.9) (11.9) 23.4 27.4 32.8

Growth (%)

Revenue 2 9.0 66.9 61.3 33.9 32.5

EBITDA na na na 6 3.4 44.4

EBIT na na na 6 8.6 50.3

Normalised EPS na na na 2 8.2 47.5

Normalised FDEPS na na na 2 8.2 47.5

Per share

Reported EPS (US$) na (0.00) 0.03 0.04 0.05

Norm EPS (US$) na (0.03) 0.03 0.04 0.05

Fully diluted norm EPS (US$) na (0.03) 0.03 0.04 0.05

Book value per share (US$) 0.10 0.10 0.13 0.17 0.23

DPS (US$) - - - - -

Source: Nomura estimates

Biosensors International Jit Soon Lim, CFA

Nomura 4 12 April 2010

We forecast FCF to turn

positive on a recurring basis

in FY10F

Cashflow (US$mn)

Year-end 31 Mar FY08 FY09 FY10F FY11F FY12F

EBITDA (39.1) (19.8) 23.9 39.0 56.3

Change in working capital 12.8 (2.7) (17.0) (17.5) (17.5)

Other operating cashflow 9.2 30.4 0.4 (10.1) (12.8)

Cashflow from operations (17.1) 8.0 7.3 11.3 26.1

Capital expenditure (3.6) (4.8) (2.4) (2.4) (2.4)

Free cashflow (20.7) 3.2 4.9 9.0 23.7

Reduction in investments 4.0 2.8 - - -

Net acquisitions - - - - -

Reduction in other LT assets

Addition in other LT liabilities - - - - -

Adjustments (10.3) (0.7) - - -

Cashflow after investing acts (27.1) 5.3 4.9 9.0 23.7

Cash dividends - - - - -

Equity issue 1.2 0.4 - - -

Debt issue - - - - -

Convertible debt issue (0.1) (0.1) (12.1) 0.1 (0.0)

Others - - - - -

Cashflow from financial acts 1.2 0.3 (12.1) 0.1 (0.0)

Net cashflow (26.0) 5.6 (7.2) 9.1 23.7

Beginning cash 80.2 54.3 60.1 52.9 62.0

Ending cash 54.2 59.9 52.9 62.0 85.7

Ending net debt (10.2) (13.3) (18.1) (27.2) (50.9)

Source: Nomura estimates

Balance sheet (US$mn)

As at 31 Mar FY08 FY09 FY10F FY11F FY12F

Cash & equivalents 54.3 60.1 52.9 62.0 85.7

Marketable securities - - - - -

Accounts receivable 8.3 19.0 30.4 44.5 57.8

Inventories 12.4 13.3 18.1 24.4 30.3

Other current assets 8.5 5.3 6.7 8.0 9.7

Total current assets 83.5 97.8 108.2 138.8 183.5

LT investments 3.2 0.4 0.4 0.4 0.4

Fixed assets 8.8 9.9 9.7 9.3 8.8

Goodwill 16.1 10.7 10.7 10.7 10.7

Other intangible assets 2.3 1.3 0.3 (1.8) (3.9)

Other LT assets 71.3 78.4 94.2 111.8 135.2

Total assets 185.2 198.5 223.5 269.2 334.6

Short-term debt - 46.8 - - -

Accounts payable 3.6 2.2 2.5 3.3 4.1

Other current liabilities 36.1 43.2 43.5 46.7 49.3

Total current liabilities 39.7 92.3 46.0 50.0 53.4

Long-term debt - - 34.8 34.8 34.8

Convertible debt 44.0 - - - -

Other LT liabilities 3.0 2.3 1.9 1.8 1.6

Total liabilities 86.7 94.6 82.7 86.5 89.8

Minority interest - - - - -

Preferred stock - - - - -

Common stock 159.1 159.8 159.8 159.8 159.8

Retained earnings (75.8) (77.0) (41.3) 0.6 62.8

Proposed dividends - - - - -

Other equity and reserves 15.2 21.1 22.2 22.2 22.2

Total shareholders' equity 98.5 103.9 140.7 182.6 244.8

Total equity & liabilities 185.2 198.5 223.5 269.2 334.6

Liquidity (x)

Current ratio 2 .10 1.06 2.35 2.78 3.43

Interest cover ( 73.4) ( 8.4) 8 .5 8.7 13.6

Leverage

Net debt/EBITDA (x) na na net cash net cash net cash

Net debt/equity (%) net cash net cash net cash net cash net cash

Activity (days)

Days receivable 8 8.7 67.5 75.7 85.6 88.5

Days inventory 1 74.2 159.4 172.5 173.4 183.4

Days payable 4 7.9 36.4 25.8 23.6 25.0

Cash cycle 2 15.1 190.4 222.3 235.4 246.9