Looming price cuts threaten Biosensors International Group's health

Cost changes in drug-eluting stents, BIG's main draw, threatens to dampen the company's gross margins.

Meanwhile, Raffles Medical Group reported an underwhelming PATMI. OCBC expects RMG will continue to benefit from the healthcare scene in Singapore, including medical tourism. 

Here's more from OCBC Investment Research:

Under the Healthcare sector coverage for the 1QCY12 results period, Raffles Medical Group reported PATMI which was slightly below expectations, while Biosensors International Group’s core earnings were in line with estimates. Both companies continued to exhibit healthy growth trends for both topline and bottomline, while generating strong operating cashflows and maintaining a net cash position.

Positive developments taking place although risks remain. BIG is expected to extend its market share gains as it continues to deliver strong clinical trial data which highlights the safety and efficacy of its drug-eluting stents. Despite economic weakness emanating from the eurozone region, BIG still managed to achieve over 20% sales growth from the EMEA region, while Asia-Pacific was also another key area of growth for the group.

Management believes that it is able to sustain its current growth trajectory in these regions moving forward. The biggest risk stems from price cuts of DES in some countries such as China, which would dampen BIG’s gross margins. 

On the other hand, RMG remains poised to benefit from the thriving healthcare scene in Singapore from both local patients and medical travellers. Although competitive and wage pressures are on the rise, RMG seems like it has room to raise its ASPs given its competitive pricing vis-à-vis its peers, while an increased depth of sub-specialties on offer would aid its revenue intensity increment.