China IPO on deck: China Medical Technologies (CMED)

China Medical Technologies (proposed ticker: CMED) is expected to go public on Nasdaq tomorrow. Here is a look at the medical device company and analysis of its latest financial results:

Description

• Based in Beijing, China.
• Medical device company that develops, manufactures and markets products using high intensity focused ultrasound, or HIFU, for the treatment of solid cancers and benign tumors in China.
• 177 employees as of June 30, 2005.
• Web site: See here.

Competition

• Competitors for its HIFU therapy system include Chongqing Haifu Technology, and Shanghai A&S Science Technology Development.
• ECLIA system competes with IVD systems and reagents offered in the China market by international companies, including Abbott Diagnostics, Bayer AG, Beckman Coulter, Diagnostic Products Corporation, or DPC, EG&G Wallac, Johnson & Johnson and Roche Group.

Institutional Ownership (% of ordinary shares owned prior to offering)

• Chengxuan International (investment firm owned by CEO Wu): 54.9%.
• Golden Meditech (BVI) Company: 24.95%.
• General Electric International Operations -- subsidiary of General Electric (ticker: GE): 19.95%.

Market Statistics

• According to market research firm Frost & Sullivan, the
  China market for medical devices and equipment is expected to grow from
  $5.9 billion in 2002 to $10.1 billion in 2006, at a compound annual
  growth rate of approximately 14%.

IPO Details

• Ticker: CMED
• Maximum aggregate offering: $92.0 million.
• Offering 5 million ADSs representing 50 million ordinary shares.
• Offering price: $14 - $16 per ADS.
• Ordinary shares after the offering: 250,000,001.
• Net proceeds to the company: $66 million (assuming $15 per ADS).
• Use of proceeds: $12.0 million for remaining payments relating to acquisition; $8.0 million for R&D; $8.0 million for production equipment; and $5.0 million for sales and marketing.
• Lead underwriter: UBS Investment Bank.
• Lock-up: Existing shareholders have 180-day lockup-up period. Asset Managers and Neon Liberty subject to 270-day lock-up period.

Preliminary Q1 Results (three months ended June 30, 2005)
(all percentage changes and comparisons are year on year, unless stated otherwise)

• Net revenue rose 132.1% to $7.4 million.
• Revenue from ECLIA system rose from $0 to $3.0 million.
• Revenue from HIFU therapy system rose 38.9% to $4.4 million.
• Net income rose 145.5% to $3.6 million.

FY 2005 Results (year ended March 31, 2005)
(all percentage changes and comparisons are year on year, unless stated otherwise)

• Revenue rose 96.4% to $26.3 million.
• Gross margin was 70.3% vs 69.3%.
• Operating expenses rose 137.4% to $3.0 million.
• Research and development expenses rose 38.3% to $340,000.
• Sales and marketing expenses rose 88.4% to $599,000.
• General and administrative expenses rose 196.2% to $2.0 million.
• Operating income rose 93.4% to $15.5 million.
• Operating margin was 59.1% vs 60.0%.
• Net income rose 92.4% to $14.3 million.
• Diluted EPS of $0.07 vs $0.04.
• Diluted earnings per ADS of $0.70.

Balance Sheet

• As of March 31, 2005, cash and equivalents of $1.77 million.

Comment: You can access the latest amended F-1 here.

Not subscribed to The China Stock Blog? You can get updated headlines for free by adding The China Stock Blog to your My Yahoo page. Just log into your My Yahoo
page, then go to The China Stock Blog and click on the "+ My Yahoo"
button on the top right of your screen. You can do the same for other sites, such as The Internet Stock Blog, ETF Investor, and Sound Money Tips.

Comments

[matt]

CMED looks really interesting, but I could not find much research on it. Besides what's already on this site, I would add it appears to be the only major player in China. There are other foreign companies that sell this, eg. EDAP TMS S.A., Focus
Surgery, and Insightec, but they have no exposure in China. Note that the ultrasound imaging system, the major component of the machine, is sourced from GE, who is also a shareholder. In addition, it has entered into a service agreement with GE to provide repair services for medical equipment GE sells in
China.

Market potential appears huge. 150 HIFU machines have been sold to date. CMED
is targeting the approx 6,000 large and medium-size hospitals in China.

Any comments would be appreciated.