Shandong Weigao disposes Biosensors International stake for $312m

21% stake bought by CB Medical Holdings.

Shandong Weigao announced that it is selling its entire 21% stake in Biosensors International Group (BIG) for US$312m at S$1.05 per share to buyer CB Medical Holdings Ltd, a holding company incorporated in Bermuda, which DBS Group Research believes could be a China private equity fund.

Shandong Weigao said its disposal was prompted by competition in the PRC and an intention to focus more on its core medical consumables, blood purification and orthopedic product segments. Shandong Weigao will recognize a loss of disposal of RMB449m, and will vacate the two board seats it currently holds in BIG.

DBS Group deems the transaction a positive for Shandong Weigao, but foresees challenges for BIG: "As Shandong Weigao is in a net cash position and is in no urgent need for money, we therefore believe this signifies Shandong Weigao’s loss of confidence in the stent business."

"The consideration of US$312m is less than the net book value of its interest in Biosensors. Even though there is a Rmb449m loss on disposal, we think it is good for Shandong Weigao’s share price as it is exiting the competitive stent business and now has additional funds for future business development," it added.

Meanwhile DBS has a grimmer assessment for BIG: "Fundamentally, BIG is looking at weak revenue growth and falling margins decline due to lower licensing contribution and lower ASPs in China."

"Competition in China is intensifying; the number of major players for stents has increased from 7 in 2010 to >11 now. Also, the industry is experiencing sharp price cuts (average prices down by >15% YTD). In addition, Terumo is now developing its own DES product in Japan for launch next year and will rely less on BIG," the research firm added," it concluded.