China Medical's Upside: Margin Increase or Expense Reduction?

As I look for new ideas, I keep coming back to old positions in the fund; Friday I saw China Medical (CMED) up strongly on a pre-announcement - a quite substantial one at that. Now in this case there was little clue of this in the chart, as the company had fallen below the 200 day moving average; not joining the party in "all things Chinese" of late.

• Medical-device maker China Medical Technologies Inc. said Friday its adjusted profit from continuing operations grew 43 percent in the fiscal fourth quarter.
• The Beijing-based company reported preliminary fourth quarter results, and will make a full report in late July. It said its adjusted profit increased to 116 million renminbi, or $17 million, which translates to 60 cents per American Depositary Share. Revenue from continuing operations grew 37 percent, to 248 million renminbi, or $36 million.
• The two analysts reporting to Thomson Reuters expected 43 cents per share and $35.3 million in revenue for the quarter, which ended March 31.
• For the full year, China Medical Technologies said its adjusted profit from continuing operations grew 79 percent, to 416 million renminbi, or $61 million. That is equal to $2.30 per American Depositary Share. Revenue from continuing operations rose 51 percent to 829 million renminbi, or $121 million.

Since revenue came mostly inline with analysts estimates, there must have been either an increase in margins somewhere on the P&L, or an expense reduction. We'll know in July.

[Aug 12, 2008: China Medical Announces Convertible Debt Offering]

[Aug 5, 2008: China Medical - Back on Track; Valuation Should be Higher]

[Feb 25, 2008: China Medical - What Stock Market Correction?]

Disclosure: No position

Comments

[Steak:]

Careful, this one'll bite you. It used to trade beautifully, every down day it would be up. Late 07 early 08 it was the only stock I owned. But those days are over. It is now trading like any other "risk" asset. I've yet to read an earnings call of theirs where analysts were clear how CMED calculated their margins. So the moral of this story: consider this company with caution, I really don't think it has a sustainable future in the 30's this year.

Jun 22 10:42 AM