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UOB Kay Hian says revaluation catalyst for China Gaoxian is upcoming Korean listing

Cao Xiangbin, chairman & CEO, China Gaoxian. NextInsight file photo

Source: UOB Kay Hian, Oct 14

DBS Vickers says Hony Capital’s entry could pave way in China

We dialed in to the conference call last evening* (13 Oct) hosted by Biosensors' Chairman Mr Lu Yoh-Chie with respect to the sale of his entire stake to Hony Capital.The salient points of the call are as follows:

Biosensors' stent is flexible.

• Other 6 vendors in the sale not disclosed due to personal confidentiality reasons, but we believe it could be pre-IPO investors.

• Transaction price was based on 45 days average price and discussions with Hony Capital going back months before.

• Rationale for sale - Mr Lu believed Hony Capital, as new partner, could bring company to next level.

• Strategy of company remains unchanged.

• Discussions of board seats and management contracts for Hony Capital in progress and yet to be finalised.

Our views:

Our assessment of the situation is still ongoing. However, our preliminary thoughts are that entry of Hony Capital could spell positive prospect for Biosensor going forward, especially in China. Hony Capital is a vote of confidence, with ultimate links to Legend/Chinese Academy of Sciences Holdings. Hony Capital could add value to BIG's operations especially in China. Hony Capital's shareholder is Legend Holdings, which in turn is 35% held by Chinese Academy of Sciences Holdings (an SOE). In that respect, the chances of its BioMatrix obtaining approvals in the Chinese market would be enhanced going forward. We think the element of "guanxi" could also take the relationship with Shandong Weigao forward.

Chairman's total exit may raise concerns, especially at seemingly discounted price. We believe Mr Lu's total exit would undeniably raise investors' concerns. However, in our view at this point, Mr Lu would have netted a princely sum even with the "discount". The “discount” could be skewed as share price has surged since Sep. Since our initiation note on 17 Sep, share price is up by c.25% (as of last evening’s closing).

Mr Lu stepped down as CEO since Jan’08. Mr Lu is the founder and ex-CEO of the Group. But he has stepped down as CEO since Jan 2008 (coincided with BioMatrix receiving CE Mark). Current CEO, Mr Jeffrey Jump, succeeded Mr Mike Klein in May 2010. Mr Jump joined Biosensors in 2003 and was SVP Sales & Marketing. As such, we believed Mr Lu’s share sale should not have any impact on management matters.

Management team to remain. We believe the management team should remain intact. In our view, Hony Capital, as a private equity fund, would likely retain the company's key personnel to maximise its investment returns. We understand that issues such as management agreements and board seats are still under negotiations.

What would cause us to change our views/ Risks. Notwithstanding our current views, we would be looking out for changes in management, which could create uncertainty and scuttle the Group’s plans.