Action

We believe BIG's recent share price weakness follows the derating of its peers,

which reflects the regualtory pricing uncertainty in China. Investors may also be

losing patience on Nobori’s approval in Japan. Other than these two uncertainties,

we see no fundamental weakness. Indeed, we believe investors have overlooked

its strong 3QFY11 results which reaffirmed its competiveness. BUY.

 Catalysts

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

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

Japanese 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 such

as BIG, with its leading-edge technology, could be M& A targets for incumbents.

 

Attractive entry level

 De-rating follows Chinese peers on pricing concerns

We believe BIG’s recent de-rating lags its Chinese peers

has been down 26% and Lepu has been down 11% since December

10 (Exhibit 1) when China announced ceiling price cuts for 174 drugs.

According to management, the overall stent price cut in China is likely

to be gradual as the tendering process has decentralized to the

provincial level. We have factored in a 15% ASP cut for JWMS, a JV

of BIG, in our forecast.− Microport

 Losing patience on Nobori’s approval in Japan?

In our view, another uncertainty surrounding the stock is Nobori’s

impending approval in Japan. While it is not possible to predict

regulatory actions, we believe Nobori’s approval is not a question of if,

but when. In its recent 4Q10 results, Boston Scientific warned of a

potential DES market share loss in Japan on the back of the launch of

a new product by a “Japanese competitor” in early 2011 (presumably

Terumo, in our view).

 Strong 3QFY11 results overlooked by market

We reiterate our read on BIG’s strong 3QFY11 results, which we think

is overlooked by the market. DES revenue was up 26%q-q (not on a

low base) on organic market share gains in almost every country. We

believe this reaffirms the competitiveness of BioMatrix, and BIG’s

overall market share will likely be further augmented by the launch of

BioFreedom whose CE Mark approval is expected in FY12 (Mar-end),

according to management.

 BUY on weakness, upside risk to FY11F EPS

BIG’s current share price has arguably discounted the risks /

uncertainties and presents an attractive entry level. 9MFY11 recurring