i-SENS

(099190 KQ)
[Company visit] Effects from capacity
expansion to materialize

Healthcare 2013: Across-the-board revenue increases

By region, i-SENS’ 2013 revenue reached W26.6bn (+18.2% YoY) in the US, W15.7bn
Company Update (+49.5% YoY) in Asia, W14bn (+8.5% YoY) in Korea, W12.2bn (+41.9% YoY) in the
March 24, 2014 eurozone, and W14.1bn (+18.5% YoY) in other markets.

By customer, revenue from AgaMatrix, Arkray, and Pharmaco increased 16%, 220%, and
71% YoY, respectively.
(Maintain) Buy
Revenue growth to continue into 2014
Target Price (12M, W) 77,000
I-SENS guided 2014 revenue, operating profit, and net profit at W101bn, W21.7bn, and
W18.3bn, respectively.
Share Price (03/21/14, W) 57,100
The company expects top line to rise significantly YoY on the back of well-rounded
Expected Return 35% revenue growth: W3-4bn in incremental revenue from the eurozone, W2-3bn from
Korea, W2-3bn from China, W2-2.5bn from AgaMatrix (which accounts for a significant
portion of US revenue), and W6-8bn from Arkray (which represents the lion’s share of
OP (13, Wbn) 18
Asian revenue).
Consensus OP (13F, Wbn) 18
Wonju plant’s new capacity to come online in 2H
EPS Growth (13, %) 80.5
Market EPS Growth (13F, %) 4.8 Last year, i-SENS’ Wonju plant produced 750mn units (vs. capacity of 800-900mn based
P/E (13, x) 20.7 on a single 10-hour shift). The company commenced capacity expansion efforts for the
Market P/E (13F, x) 12.2 plant in 2013. As the installation of equipment is scheduled for 1H14 and registration
KOSDAQ 546.81 for end-June, the new capacity is expected come online in 2H14. The capacity expansion
is anticipated to push up the Wonju plant’s production capacity to 1.5bn units.
Market Cap (Wbn) 517
Shares Outstanding (mn) 9 Meanwhile, the production capacity of the Songdo International Business District (IBD)
Free Float (%) 72.5 plant stands at 200mn units (based on a single eight-hour shift). The company is also
Foreign Ownership (%) 35.6 considering capacity ramp-up for the Songdo IBD plant, targeting completion in 2015.
Beta (12M) 1.48 We note that the Songdo IBD plant has thus far failed to generate profits (as of end-
52-Week Low 30,550 2013).
52-Week High 58,400
Global outreach efforts to continue through 2014
(%) 1M 6M 12M
Absolute 16.1 63.6 81.3 Currently, i-SENS is awaiting US FDA approval (submitted by Arkray) for products
Relative 12.2 57.7 80.5 manufactured at the Songdo IBD plant. With approval expected in 1Q, i-SENS appears
to have already launched production for items to be supplied to Arkray. Notably, 30% of
190 i-SENS KOSDAQ i-SENS’ 2014 supply to Arkray is projected to be used by the Japan-based firm’s US
170
subsidiary. Meanwhile, i-SENS (via Arkray) should see its products covered by US
150
130
insurance providers starting this year. We project sales to Arkray to be reflected in
110 revenue starting in 2H.
90
70
3.13 7.13 11.13 3.14

Daewoo Securities Co., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13 12/14F 12/15F
Revenue (Wbn) 38 52 66 83 106 147
[Healthcare] OP (Wbn) 6 9 8 18 25 37
Hyun-tae Kim OP margin (%) 15.8 17.3 12.1 21.7 23.6 25.2
+822-768-3251 NP (Wbn) 6 8 9 18 23 34
hyuntae.kim@dwsec.com EPS (W) 797 984 1,113 2,009 2,573 3,780
ROE (%) 14.5 14.2 13.9 23.2 23.9 27.1
P/E (x) - - - 20.7 22.2 15.1
P/B (x) - - - 4.4 4.7 3.6
Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests
Source: Company data, KDB Daewoo Securities Research estimates

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
March 24, 2014 i-SENS

I-SENS is preparing to establish a subsidiary in China, with a local partner providing marketing
assistance. (It will likely take some time for the company to build a unit dedicated to local
marketing.) I-SENS’ standing in the Chinese market seems to be improving, given that it recently
received a partnership offer from a local blood glucose meter firm larger than the company’s
current partner. Over the long term, the estabilishment of a Chinese subsidiary and the forging of
new local partnerships will likely help i-SENS gain market share in China.

Furthermore, it should be noted that the company will begin supplying products to the Finnish
market this year after prevailing in competitive bidding. Unlike the US, the European market is
characterized by diverse and frequent public bidding opportunities. (For products exported to
Europe, i-SENS uses a private label.) The company is already an exclusive supplier to New
Zealand’s Pharmaco and is tapping into Latin America. In fact, i-SENS already supplies its products
to the Peruvian market, and has recently gone through the Brazilian government’s due diligence
process.

Key earnings determinants: F/X rates, cost management, and orders

I-SENS presented OP margin guidance of 21.5%, lower than the 2013 result. This target was
largely influenced by expectations for unfavorable F/X rates and a lower ASP for products sold to
AgaMatrix.

We believe that the company’s margins will hinge on F/X rates, the growth (and ASP) of sales to
AgaMatrix, cost control effects, and new orders. We anticipate sales to AgaMatrix will remain
robust this year, given the firm’s strong sales to European pharmaceutical firms. Cost burden is
likely to decrease in light of rising utilization at the Songdo IBD factory. We also expect to hear
news of additional overseas orders and fresh partnerships with Chinese firms. Hence, we see the
company’s 2014 guidance as conservative.

Key takeaway: Focus on potential market share gains

We think i-SENS’ current marketing strategy of targeting domestic sales agencies and hospitals is
effective. On the back of the company’s quality and price competitiveness, market share is likely
to continue to grow.

Currently, downward pricing pressures are threatening major global competitors’ market shares.
This trend should enable i-SENS to expand its presence in the global marketplace via its quality
products and price competitiveness. I-SENS rolled out a wireless blood glucose monitor that is
linked with the Samsung S Health app in Korea. Since this app comes preloaded on some
Samsung Galaxy models, the monitor could make its way overseas. In addition, iBGStar, a
monitoring system that can be linked to the iPhone, could be made available in the US. With the
mobile healthcare segment growing, we believe that i-SENS’ products could see increased
connectivity with major global smartphone models, which should boost the company’s market
share.

KDB Daewoo Securities Research 2

March 24, 2014 i-SENS

i-SENS (099190 KQ/Buy/TP: W77,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/12 12/13F 12/14F 12/15F (Wbn) 12/12 12/13F 12/14F 12/15F
Revenue 66 83 106 147 Current Assets 36 53 80 124
Cost of Sales 44 49 62 85 Cash and Cash Equivalents 2 6 23 49
Gross Profit 22 34 44 62 AR & Other Receivables 19 18 23 32
SG&A Expenses 14 15 19 24 Inventories 14 18 23 31
Operating Profit (Adj) 8 18 25 37 Other Current Assets 1 11 11 12
Operating Profit 8 18 25 37 Non-Current Assets 56 51 48 41
Non-Operating Profit 2 4 3 4 Investments in Associates 1 1 1 1
Net Financial Income 0 0 0 1 Property, Plant and Equipment 52 48 44 39
Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 2 1 1 1
Pretax Profit 10 22 28 41 Total Assets 92 104 128 165
Income Tax 2 4 5 7 Current Liabilities 12 10 10 14
Profit from Continuing Operations 9 18 23 34 AP & Other Payables 6 7 9 12
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 5 2 0 0
Net Profit 9 18 23 34 Other Current Liabilities 1 1 1 2
Controlling Interests 9 18 23 34 Non-Current Liabilities 11 8 8 8
Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 9 6 6 6
Total Comprehensive Profit 9 17 23 34 Other Non-Current Liabilities 2 2 2 2
Controlling Interests 9 17 23 34 Total Liabilities 24 18 19 22
Non-Controlling Interests 0 0 0 0 Controlling Interests 69 86 109 144
EBITDA 13 25 32 44 Capital Stock 4 4 4 4
FCF (Free Cash Flow) -10 19 18 26 Capital Surplus 29 29 29 29
EBITDA Margin (%) 19.7 30.1 30.2 29.9 Retained Earnings 35 53 76 110
Operating Profit Margin (%) 12.1 21.7 23.6 25.2 Non-Controlling Interests 0 0 0 0
Net Profit Margin (%) 13.6 21.7 21.7 23.1 Stockholders' Equity 69 86 109 144

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F
Cash Flows from Op Activities 5 20 21 26 P/E (x) - 20.7 22.2 15.1
Net Profit 9 18 23 34 P/CF (x) - 14.0 15.4 11.1
Non-Cash Income and Expense 6 9 10 12 P/B (x) - 4.4 4.7 3.6
Depreciation 4 6 6 6 EV/EBITDA (x) - 14.7 15.4 10.6
Amortization 1 1 0 0 EPS (W) 1,113 2,009 2,573 3,780
Others 1 2 4 6 CFPS (W) 1,816 2,965 3,710 5,131
Chg in Working Capital -9 -2 -8 -14 BPS (W) 8,538 9,497 12,070 15,851
Chg in AR & Other Receivables -10 1 -5 -8 DPS (W) 0 0 0 0
Chg in Inventories 0 -4 -5 -9 Payout ratio (%) 0.0 0.0 0.0 0.0
Chg in AP & Other Payables 1 0 1 2 Dividend Yield (%) - 0.0 0.0 0.0
Income Tax Paid -1 -4 -5 -7 Revenue Growth (%) 26.9 25.8 27.7 38.7
Cash Flows from Inv Activities -14 -9 -2 0 EBITDA Growth (%) 0.0 92.3 28.0 37.5
Chg in PP&E -15 -2 -3 -1 Operating Profit Growth (%) -11.1 125.0 38.9 48.0
Chg in Intangible Assets 0 0 0 0 EPS Growth (%) 13.1 80.5 28.1 46.9
Chg in Financial Assets 2 -9 0 0 Accounts Receivable Turnover (x) 4.9 4.7 5.5 5.7
Others -1 2 1 1 Inventory Turnover (x) 4.7 5.3 5.3 5.4
Cash Flows from Fin Activities 2 -6 -1 0 Accounts Payable Turnover (x) 17.5 16.7 17.2 17.7
Chg in Financial Liabilities -1 -6 -1 0 ROA (%) 10.2 18.3 20.1 23.3
Chg in Equity 1 0 0 0 ROE (%) 13.9 23.2 23.9 27.1
Dividends Paid 0 0 0 0 ROIC (%) 9.6 19.2 26.1 35.6
Others 2 0 0 0 Liability to Equity Ratio (%) 34.2 21.0 17.0 15.2
Increase (Decrease) in Cash -7 4 17 26 Current Ratio (%) 292.5 540.5 778.1 911.8
Beginning Balance 8 2 6 23 Net Debt to Equity Ratio (%) 16.2 -9.9 -24.7 -37.1
Ending Balance 2 6 23 49 Interest Coverage Ratio (x) 20.3 60.9 130.8 214.7
Source: Company data, KDB Daewoo Securities Research estimates

KDB Daewoo Securities Research 3

March 24, 2014 i-SENS

APPENDIX 1

Important Disclosures & Disclaimers

2-Year Rating and Target Price History
Company (Code) Date Rating Target Price
i-SENS (099190) 03/12/2014 Buy 77,000 (W) i-SENS

11/07/2013 Buy 64,000 100,000

No Coverage 80,000

60,000

40,000

20,000

0
Mar 12 Mar 13 Mar 14

Stock Ratings Industry Ratings

Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving
Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes
Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening
Sell : Relative performance of -10%
Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))
* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.
* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material
development.
* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of
future earnings.
* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic
conditions.

Disclosures
As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or
more of the subject company's shares outstanding.

Analyst Certification
The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean
securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions
expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this
report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s
area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified
herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been
promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific
recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by
overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and
private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of
the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.

Disclaimers
This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange.
Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been
independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or
correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English
translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this
report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This
report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any
securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of
the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any
laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof.
Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or
form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers,
employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a
purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or
agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment
banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to
in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to
future performance. Future returns are not guaranteed, and a loss of original capital may occur

KDB Daewoo Securities Research 4

March 24, 2014 i-SENS

Distribution
United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other
persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant
Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its
contents.
United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional
investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance
thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that
they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed
herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The
securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or
sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements.
Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong
Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for
distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws
of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person.
All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or
its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its
affiliates to any registration or licensing requirement within such jurisdiction.

KDB Daewoo Securities International Network

Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc.
Head Office Two International Finance Centre 320 Park Avenue, 31st Fl.
34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 New York, NY 10022
Seoul 150-716 8 Finance Street, Central
Korea Hong Kong United States
Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1000
Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Representative Office
Tower 42, Level 41 6 Battery Road, #11-01 7th Floor, Yusen Building
25 Old Broad Street Singapore, 049909 2-3-2 Marunouchi, Chiyoda-ku
London EC2N 1HQ Tokyo 100-0005
United Kingdom Japan
Tel: 44-20-7982-8016 Tel: 65-6671-9845 Tel: 81-3- 3211-5511
Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office
Suite 2602, Twin Towers (East) Unit 13, 28th Floor, Hang Seng Bank Tower Centec Tower
B-12 Jianguomenwai Avenue 1000 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street
Chaoyang District, Beijing 100022 Pudong New Area, Shanghai 200120 Ward 6, District 3, Ho Chi Minh City
China China Vietnam
Tel: 86-10-6567-9699 Tel: 86-21-5013-6392 Tel: 84-8-3910-6000

KDB Daewoo Securities Research 5