China Pharma Delivers Just What The Doctor Ordered

After the bell, China Pharma Holdings (CPHI.OB) filed impressive quarterly results with the SEC. The company, which I profiled in greater detail a few weeks ago, announced quarterly earnings of approximately $3.33M, or $.09 per fully-diluted share, on revenues of $8.57M. All metrics improved over the same quarter in 2006, when the company earned $1.83M, or $.05 per fully-diluted share, on revenues of $3.98M.

Cash flow remains slightly negative as the company has a long collection cycle; however, even this metric improved sequentially over the first quarter. While the company will certainly be asked about receivables in the conference call on Tuesday, there was no indication in the 10-Q that any of the receivables need to be written off.

$216,000 of income is attributable to favorable currency translations. Many analysts deduct this and other charges to arrive at core earnings. However, with Chinese companies I think currency translation should not be disregarded. The dollar is in a long-term decline versus the yuan. Chinese companies selling mainly in China should enjoy an earnings boost as long as the trend persists, and there is no reason for investors to deny the existence of this phenomenon.

Technically, CPHI shares seem to have put in a bottom just under $1.40. I’m looking for a solid boost on Tuesday in reaction to the earnings report, and a sustained move off of these lows.

DISCLOSURE: Long CPHI.OB

CPHI.OB 1-year chart