Biosensors International Group (Biosensors) posted results that beat our expectations. The group posted 1Q10 revenue of US$23.8m (+6% QoQ, -66% YoY) and net profit of US$4.2m (about 10x QoQ growth). Stripping out the one-time US$41m licensing fee in 1Q09, gross profit would have grown about 70% YoY. This quarter is especially pivotal as the group's performance was primarily driven by its core business, not through exceptional items.

Importance of market share acquisition. We iterate that Biosensors has embarked on the right strategy to sustain its market share acquisition track by growing its topline. While profitability remains a key component of every company's financials, growing sales on a QoQ basis implies growing market acceptance and product entrenchment within the medical community. This is important for any new product launch but especially for a growing medical device company like Biosensors. Sales for its key BioMatrix product sustained its growth trajectory of 8% QoQ and 59% YoY. Its other product divisions also turned in better-than-expected sales with improved margins.

JW Medical System outperforms. Biosensor's 50%-owned JWMS outperformed expectations this quarter, contributing US$3.1m (+100% YoY, +11% QoQ) to Biosensors. Management was upbeat about its sales and expects that sustained performance from this unit would aid it in its eventual penetration into the Chinese market with its BioMatrix Drug Eluting Stent (DES) that is pending approval in China (12-15 months later). Management also dispelled market rumours that it would be divesting JWMS. It highlighted that JWMS' CEO is a Biosensors employee and that strong link is critical in the long run to manage any technology transfer in the Chinese market.

Competitors help create a wake. J&J (with its Nevo Stent) and Boston Scientific (with its acquisition of Labcoat in Jan 09) indicated that their future DES developments would embrace biodegradable polymer technology. Biosensors can effectively utilise the technology marketing wake created by these two large companies to jump start sales again. Biosensors will be presenting its 2-year follow-up LEADERS trial results in Sep 09. We are expecting positive newsflow.

Maintain BUY. We have retained our estimates and prefer to see sustainability of JWMS performance and a more predictable pattern in licensee royalties prior to refining forecasts. We are maintaining our medtech discounted model with a fair value of S$0.74.