Weigao weak 3Q11 result

Consumables sales grew 22.8% y/y in 3Q11 to rmb656M largely due to growth slowdown in infusion sets (+26.7%vs. 33% in 2Q), needles (+30.4% vs.39% in 2Q), prefilled syringes (+15.9% vs. 35%in 2Q) and blood bags (+5.9% vs. 18% in 2Q).
The pressure on consumables salesgrowth came from: 1) restriction on use of high-end infusions in five provinces; 2)elimination of unqualified distributors for intravenous catheters; 3) the productionsuspension in major pre-filled syringes clients for cGMP inspections, which areexpected to continue in 4Q and 1H12; and 4) slowing market growth for blood bags.

Weigao reduced underperformed distributors in 2H fordialyzers and intravenous catheters, and the impact was estimated as ~rmb10Mand ~rmb5M in Q3, respectively. Excluding the impact of restructuring, the y/ygrowth was ~35% y/y for needles and ~45% (vs. 5% in 3Q) for medical instruments.The impact in 4Q could be ~rmb20M

Gross margin was 55.6%,Management expects GM to be stable in2012, at around 55%, as pricing pressure for some high-value consumables could beoffset by slight price increases in low-value consumables.

Management revised guidance for sales growth in’12 from 30%+y/y to 26~28% y/y with 25% y/y growth for conventional consumables