Sihuan Pharmaceutical Holdings, which counts billionaire George Soros as an investor, will sell a 50 per cent stake in a company it bought last month.
It will make a profit of at least 250 million yuan (HK$321.4 million).
The producer of cardio-cerebral vascular drugs, which was listed in Hong Kong in October, will sell its equity in Vinise Pharmaceutical for 637.5 million yuan to Shangdong Buchang Pharmaceutical, a producer of traditional Chinese medicine.
'This deal will enable the two companies to jointly develop more traditional Chinese medicine for the treatment of cardio-cerebral vascular diseases,' said Che Fengsheng, Sihuan's chairman and chief executive. 'We will continue to look for merger and acquisition opportunities in the area of oral medicine.'
The transaction is likely to be completed in two phases by next year. Che said he was open to any proposals for profit-sharing with shareholders, including special dividends.
A new production line will be set up for making traditional Chinese medicine, he said, but he did not reveal the scale of the new plant or the estimated investment amount.
Analysts believe the co-operation with Buchang could expand Sihuan's sales network to the low- and mid-tier prescription and over-the-counter market. Sihuan's strength is in the hospital segment.
Sihuan's management expect profits of 300 million yuan by 2014 on sales of more than 1 billion yuan, according to a Citigroup report.
The company's shares rose 6.15 per cent to HK$3.45 yesterday, but it remains below its initial public offering price of HK$4.60 in October.
'The [stock] price will be under pressure in the short term, given [that] investors may not fully comprehend the real meaning of this complex deal,' Guotai Junan International said in a report.